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entitled 'Mortgage Foreclosures: Regulatory Oversight of Compliance
with Servicemembers Civil Relief Act Has Been Limited' which was
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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
July 2012:
Mortgage Foreclosures:
Regulatory Oversight of Compliance with Servicemembers Civil Relief
Act Has Been Limited:
GAO-12-700:
GAO Highlights:
Highlights of GAO-12-700, a report to congressional requesters.
Why GAO Did This Study:
SCRA protects servicemembers whose active duty military service
prevents them from meeting financial obligations, by allowing interest
rates on certain debts to be reduced and requiring a court order
before certain foreclosures on their homes can occur. With
foreclosures rising, reports surfaced of instances in which financial
institutions failed to comply with SCRA. GAO examined the (1)
eligibility for SCRA protections and extent of SCRA mortgage-related
violations by depository institutions, (2) SCRA compliance oversight
by prudential regulators and other federal agencies, and (3) the
military services’ efforts to educate servicemembers on SCRA. GAO
collected data on populations eligible for SCRA from DOD and SCRA
violations from banking and law enforcement agencies and reviewed a
stratified random sample of prudential regulators’ examinations of
banks and credit unions. GAO also interviewed regulators, law
enforcement and military officials, and military service organizations.
What GAO Found:
Certain protections under the Servicemembers Civil Relief Act (SCRA)
only apply to those servicemembers who obtained mortgages prior to
becoming active duty, but at least 15,000 instances of financial
institutions failing to properly reduce servicemembers’ mortgage
interest rates and over 300 improper foreclosures have been identified
by federal investigations and financial institutions in recent years.
Additional independent reviews of financial institutions’ compliance
are under way, and staff from some of these institutions told GAO that
they have implemented improved practices-—such as creating single
points of contact familiar with military issues for borrowers—-to
better comply with SCRA.
Federal regulators’ oversight of SCRA compliance has been limited. GAO
estimates that from 2007 through 2011 prudential depository
institution regulators—-the Federal Deposit Insurance Corporation,
Federal Reserve Board, National Credit Union Administration, and
Office of the Comptroller of the Currency-—reviewed 48 percent of all
banks and credit unions for SCRA compliance. Of these institutions
that were reviewed for SCRA compliance, only about half received
examinations that involved testing of compliance by reviewing loan
files. Further, GAO found that examiners had only reviewed loans
identified by the institution as involving servicemembers and had not
independently selected a statistical sample of loan files, which would
have provided greater assurance of SCRA compliance. Without more
testing, which examination and auditing guidance suggest provides
increased verification, regulators are less likely to detect SCRA
violations. Various other federal agencies are involved in SCRA
compliance oversight. The Department of Justice has explicit SCRA
enforcement authority and since 2007 has brought three cases against
mortgage servicers for violations. The Department of Veterans Affairs
(VA), Federal Housing Administration, and Federal Housing Finance
Agency—which regulates the government-sponsored enterprises—all obtain
information about SCRA compliance at the servicers that participate in
the mortgage programs they administer or regulate, but the agencies
and the prudential regulators do not share such information among
themselves. Collaboration among these agencies could lead to more
effective supervision and improve their awareness of potential
problems with SCRA compliance. Further, VA oversight of mortgage
servicers does not specifically review for SCRA compliance. By
increasing its SCRA compliance monitoring efforts, VA could better
ensure that servicemembers with VA loans are better protected.
SCRA requires that the Department of Defense (DOD) and Department of
Homeland Security (DHS)-—which oversees the Coast Guard-—inform
servicemembers of their SCRA rights. The military services provide
this information in various forms, such as briefings and websites.
However, some military officials said that servicemembers—-
particularly members of the National Guard and reserve-—often receive
SCRA information as part of briefings with numerous other topics prior
to deployment and do not always retain the necessary awareness when
they need it later. DOD and DHS do not assess the effectiveness of
their SCRA education methods, such as by using focus groups of
servicemembers or testing to reinforce retention of SCRA information.
Without such assessment, they may not be able to ensure that they are
informing servicemembers of their rights in the most effective manner.
What GAO Recommends:
Prudential regulators should conduct more extensive loan file testing
for SCRA compliance. Regulators and other agencies that oversee
mortgage activities should also explore opportunities for information
sharing on SCRA compliance oversight, and VA should expand its SCRA
compliance monitoring efforts. Finally, DOD and DHS should assess the
effectiveness of their efforts to provide SCRA information to
servicemembers. The agencies generally agreed and noted actions
responsive to GAO’s recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-12-700]. For more
information, contact Mathew Scirè at (202) 512-8678 or sciremj@gao.gov.
[End of section]
Contents:
Letter:
Background:
SCRA Eligibility, Violations, and Compliance:
Federal Regulators' Oversight of SCRA Compliance Has Been Limited:
Challenges in Ensuring Servicemembers' Awareness of SCRA Protections:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Oversight of Mortgage Servicers' Servicemembers Civil
Relief Act Compliance:
Appendix III: Comments from the Department of Homeland Security:
Appendix IV: Comments from the Department of Defense:
Appendix V: Comments from the Federal Deposit Insurance Corporation:
Appendix VI: Comments from the Board of Governors of the Federal
Reserve System:
Appendix VII: Comments from the Federal Housing Finance Agency:
Appendix VIII: Comments from the Department of Housing and Urban
Development:
Appendix IX: Comments from the National Credit Union Administration:
Appendix X: Comments from the Office of the Comptroller of the
Currency:
Appendix XI: Comments from the Department of Veterans Affairs:
Appendix XII: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Violations of SCRA Mortgage Protections Identified through
Various Reviews:
Table 2: Number of Depository Institutions in Sample:
Table 3: Examination Activities Identified by GAO for SCRA Compliance
Reviews:
Table 4: Summary of Ongoing and Completed Federal Agency Reviews of
Mortgage Servicers' SCRA Compliance:
Figures:
Figure 1: U.S. Military Population, 2010:
Figure 2: Estimated Percentage of Depository Institutions That
Serviced Mortgages That Were Examined for SCRA Compliance by Year,
2007 through 2011:
Figure 3: Estimated Percentage of Depository Institutions That
Serviced Mortgages That Were Examined for SCRA Compliance by
Regulator, 2007 through 2011:
Abbreviations:
ABA: American Bar Association:
CFPB: Consumer Financial Protection Bureau:
DCI: Data collection instrument:
DMDC: Defense Manpower Data Center:
DOD: Department of Defense:
DHS: Department of Homeland Security:
HUD: Department of Housing and Urban Development:
DOJ: Department of Justice:
VA: Department of Veterans Affairs:
FDIC: Federal Deposit Insurance Corporation:
FFIEC: Federal Financial Institutions Examination Council:
FHA: Federal Housing Administration:
FHFA: Federal Housing Finance Agency:
NCUA: National Credit Union Administration:
OCC: Office of the Comptroller of the Currency:
OTS: Office of Thrift Supervision:
SCRA: Servicemembers Civil Relief Act:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 17, 2012:
Congressional Requesters:
The Servicemembers Civil Relief Act (SCRA) is intended to provide
protections to servicemembers in the event that their military service
prevents them from meeting financial obligations.[Footnote 1] The
intent of the act is to allow servicemembers to focus on their duties
without having to experience difficulties in their financial affairs
as a result of their service. The act provides numerous protections to
servicemembers serving on active duty,[Footnote 2] including
prohibiting mortgage servicers--entities responsible for administering
home-mortgage loans--from foreclosing on their homes without court
orders, capping the interest rate and fees on their mortgages at 6
percent, and prohibiting adverse credit reporting for servicemembers
who invoke their SCRA rights. In order to be eligible for some of
these protections, servicemembers must have incurred their mortgage
prior to their active duty service.
In addition to landmark civil cases against mortgage servicers by
servicemembers, record numbers of foreclosures and allegations that
mortgage servicers did not ensure that all foreclosure documents were
properly signed or notarized in recent years caused federal agencies
to pay increased attention to servicing activities.[Footnote 3] At the
end of 2010, federal bank regulators conducted reviews of foreclosure
processing at 14 federally regulated mortgage servicers. These reviews
identified instances in which servicemembers who were protected by
SCRA had been foreclosed upon and led to numerous additional inquiries
to determine the extent to which servicemembers' SCRA rights had been
violated. For example, in 2011, some of the nation's largest mortgage
servicers--Chase Home Finance, LLC; BAC Home Loans Servicing, LP; and
Saxon Mortgage Services Inc.--settled lawsuits for millions of dollars
for faulty mortgage servicing and foreclosure practices that included
allegedly foreclosing on and charging excess interest and fees to
servicemembers in violation of SCRA.
In response to these identified instances of SCRA violations,
congressional requesters asked us to examine various aspects of
federal oversight of SCRA compliance. This report discusses (1) what
is known about SCRA eligibility, the number of violations that have
occurred, and practices financial institutions use to comply with
SCRA, (2) what oversight financial regulators and other federal
agencies have taken to help ensure financial institutions' compliance
with the act, and (3) actions the Department of Defense (DOD),
Department of Homeland Security (DHS), Department of Veterans Affairs
(VA), and others have taken to ensure that servicemembers and others
are informed of protections provided under the act. As agreed with
your staff, the scope of our review includes primarily SCRA
protections related to servicemembers' residential mortgages.
To describe what is known about the practices financial institutions
use to comply with SCRA, we interviewed representatives, from a non-
generalizable sample of 4 of the 10 largest mortgage servicers based
on unpaid principal balance of mortgages serviced, about their SCRA
compliance practices and challenges and reviewed relevant policies and
procedures. We also interviewed representatives of financial industry
associations, including those that represent the mortgage industry and
financial institutions with a large military customer base. We
reviewed letters from 10 mortgage servicers on their SCRA compliance
history and activities, which were written in response to an
investigation by the U.S. House of Representatives Committee on
Oversight and Government Reform. We also reviewed data on SCRA
violations found during bank and credit union examinations conducted
between 2007 and 2011 by the prudential depository institution
regulators--the Board of Governors of the Federal Reserve System
(Federal Reserve), the Federal Deposit Insurance Corporation (FDIC),
the National Credit Union Administration (NCUA), and the Office of the
Comptroller of the Currency (OCC)--as well as data from Department of
Justice (DOJ) enforcement actions and a recent class action settlement
against a large mortgage servicer.
To assess the oversight financial regulators have taken to help ensure
financial institutions' compliance with SCRA, we reviewed prudential
regulators' examination policies and procedures and interviewed
officials from these agencies. To assess the extent to which
prudential regulators examined banks and credit unions for SCRA
compliance, we selected a stratified random sample of 160 depository
institutions (40 from each of the four prudential regulators) and
reviewed the workpapers for each of the examinations from 2007 through
2011 for 152 of these institutions.[Footnote 4] Our sample included
only institutions that hold mortgages in their loan portfolios and
service those loans themselves or institutions that service mortgages
for other institutions. We analyzed the examination workpapers to
estimate the percentage of institutions for which prudential
regulators conducted SCRA compliance reviews and determine the
frequencies with which different examination procedures were used for
these reviews.[Footnote 5] To describe the SCRA oversight activities
of other federal agencies, we reviewed SCRA oversight policies and
procedures for DOJ, the Federal Housing Administration (FHA),
government-sponsored enterprises (the enterprises)--Fannie Mae and
Freddie Mac--and VA. We reviewed SCRA cases DOJ settled from 2007
through 2011 and SCRA compliance oversight policies and procedures of
FHA, Fannie Mae, Freddie Mac, and VA, and we interviewed officials
from these agencies.
To determine what actions DOD, DHS, VA, and others have taken to
ensure servicemembers are informed of their SCRA rights, we reviewed
the act to determine what it requires agencies to do and interviewed
two SCRA experts. We also reviewed DOD and DHS policies and procedures
and interviewed officials from DOD's Office of Legal Policy, DHS, and
the National Guard Bureau. To determine what actions other agencies,
including VA, Consumer Financial Protection Bureau (CFPB), and FHA,
were taking to inform servicemembers and others of SCRA protections,
we reviewed notifications they provide to mortgage servicers on SCRA
compliance and interviewed officials at these agencies. To determine
how servicemembers learn about their SCRA protections and what
challenges they face asserting those protections, we selected six
military installation legal assistance offices (one for the Army,
Navy, Marine Corps, and Coast Guard and two for the Air Force) based
on a geographic distribution of states with high numbers of
foreclosures and large active duty and reservist populations, and
interviewed the legal assistance attorneys who work directly with
servicemembers who visit these offices. We reviewed examples of SCRA
training and outreach that these offices develop and distribute to
servicemembers. We also interviewed two legal assistance attorneys
from the reserve components who were recommended during our interviews
with legal assistance attorneys, as well as representatives from seven
military servicemember groups that were selected based on their broad
representation of servicemembers. See appendix I for more information
on our objectives, scope, and methodology.
We conducted this performance audit from August 2011 to July 2012 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
Congress passed the Soldiers' and Sailors' Civil Relief Act in 1940 to
provide servicemembers protections to help them meet the unique
circumstances they face when serving their country.[Footnote 6] In
response to the increased use of Reserve and National Guard military
units in the Global War on Terrorism, Congress enacted SCRA in
December 2003 as a modernized version of the Soldiers' and Sailors'
Civil Relief Act. In addition to providing protections related to
residential mortgages, the act covers other types of loans, such as
credit card and automobile and a variety of other issues, such as
rental agreements, eviction, installment contracts, civil judicial and
administrative proceedings, motor vehicle leases, life insurance,
health insurance, and income tax payments.[Footnote 7]
SCRA provides the following mortgage-related protections to
servicemembers:[Footnote 8]
* Interest Rate Cap. Servicemembers who obtain mortgages prior to
serving on active duty status are eligible to have their interest rate
capped at 6 percent for the duration of their active duty status and
for 12 months after returning from active duty service.[Footnote 9]
Interest above 6 percent is to be forgiven by the servicer.
Servicemembers are required to inform their servicer of their active
duty status in order to avail themselves of this provision.
* Foreclosure Proceedings. A servicer cannot sell, foreclose, or seize
the property of a servicemember for breach of a pre-service obligation
unless a court order is issued prior to the foreclosure on the
property.[Footnote 10] This protection is effective until 9 months
after the term of active duty service ends.[Footnote 11] If the
servicer files an action in court to enforce the terms of the
mortgage, the court may stay any proceedings or adjust the obligation
to preserve the interests of the parties.
* Mortgage prepayment penalties. A court may decide that
servicemembers who have mortgages that impose penalties for paying off
the balance early are not subject to these penalties if the
servicemember incurs such fees due to military service and the ability
of the servicemember to pay the fees is materially affected by
military service.[Footnote 12] For example, a servicemember who
receives a permanent change-of-station order to relocate to another
area may receive a court order that waives the penalty for selling his
or her home and paying off the mortgage early.
* Adverse credit reporting protections. A servicer may not report
adverse credit information to a credit reporting agency solely because
a servicemember exercises his or her SCRA rights, including a request
to have his or her mortgage interest rate and fees be capped at 6
percent.[Footnote 13]
In addition to SCRA, the Housing and Urban Development Act of 1968
includes a requirement applicable to institutions that service
mortgages. This act requires that all mortgage servicers that service
home loans provide notification of the availability of homeownership
counseling offered by the lender to eligible homeowners who fail to
pay any amount by the due date.[Footnote 14] In 2006, changes were
made to the homeownership counseling notice requirement. Mortgage
servicers are required to alert borrowers of SCRA protections if they
are in default on their mortgage, and the notice instructs borrowers
to notify their servicer if they believe they are eligible for SCRA
protections.[Footnote 15] Servicers must provide the notification
within 45 days from the date a payment was missed by a borrower. The
Department of Housing and Urban Development (HUD) developed and
disseminated the format for this notice.
SCRA provides protections to active duty servicemembers in all five of
the military services--Army, Navy, Air Force, Marine Corps, and Coast
Guard--as well as members of each of these services' reserve
component.[Footnote 16] These components include the Army Reserve,
Navy Reserve, Marine Corps Reserve, Air Force Reserve, Coast Guard
Reserve, Army National Guard, and Air National Guard.[Footnote 17] In
2010, active duty servicemembers comprised 63 percent of the
military's force, and the reserve components represented the remaining
37 percent of the military force.[Footnote 18] Figure 1 shows the
distribution of the military population and shows that the Army
constitutes the greatest percentage of both active duty servicemembers
and the reserve forces.
Figure 1: U.S. Military Population, 2010:
[Refer to PDF for image: pie-chart]
U.S. military force:
Active duty services: 63%:
* Army: 39%;
* Air Force: 23%;
* Navy: 22%;
* Marine Corps: 14%;
* Coast Guard: 3%.
Reserve components: 37%:
* Army National Guard: 42%;
* Army Reserve: 24%;
* Air National Guard: 13%;
* Navy Reserve: 8%;
* Air Force Reserve: 8%;
* Marine Corps REserve: 5%;
* Coat Guard Reserve: 1%.
Source: GAO analysis of Demographics 2010: Profile of the Military
Community.
Note: Data on the reserve components represent only the Selected
Reserve within the Ready Reserve.
[End of figure]
While the Army Reserve, the Navy Reserve, the Marine Corps Reserve,
and the Air Force Reserve are federal entities, the Army National
Guard and the Air National Guard (known collectively as the National
Guard) have both federal and state missions.[Footnote 19] Members of
the National Guard who are eligible for SCRA protections are those who
have been called into federal active duty service.[Footnote 20] In
addition, members of the National Guard recalled for state duty are
also eligible for SCRA protections under certain circumstances.
[Footnote 21]
The responsibility of extending mortgage-related SCRA protections to
eligible servicemembers often falls to mortgage servicers. While some
institutions that originate home mortgage loans hold the loans as
assets on their balance sheets, institutions generally sell them to
other financial institutions or the enterprises--Fannie Mae or Freddie
Mac. The enterprises purchase mortgages from primary mortgage lenders.
They hold some of the mortgages they purchase in their portfolios, but
they package the majority into mortgage-backed securities and sell
them to investors in the secondary mortgage market. The enterprises
guarantee these investors the timely payment of principal and
interest. If a mortgage originator sells its loans to either an
investor or to an institution that securitizes them, another financial
institution or other entity is appointed as the mortgage servicer to
manage payment collections and other activities associated with these
loans. Mortgage servicers, which can be large mortgage finance
companies, commercial banks, or small specialty companies unaffiliated
with a larger financial institution, earn a fee for duties they
perform, such as sending borrowers monthly account statements,
answering customer-service inquiries, collecting monthly mortgage
payments, maintaining escrow accounts for property taxes and hazard
insurance, and forwarding proper payments to the mortgage owners.
Other mortgage lenders that hold the mortgages they originate may
service the loans internally or outsource this function.
In the event that a borrower becomes delinquent on loan payments, the
mortgage servicer must decide whether to pursue a home retention
workout or foreclosure alternative, such as a short sale, or proceed
with foreclosure. If the mortgage servicer determines that foreclosure
is the most appropriate option, it follows one of two foreclosure
methods, depending on state law. In a judicial foreclosure, a judge
presides over the process in a court proceeding. Mortgage servicers
initiate a formal foreclosure action by filing a lawsuit with a court.
A nonjudicial foreclosure process takes place outside the courtroom
and is typically conducted by a trustee named in the deed-of-trust
document that accompanied the mortgage. Trustees, and sometimes
mortgage servicers, generally send a notice of default to the borrower
and publish a notice of sale in area newspapers or legal publications.
Prudential regulators--FDIC, Federal Reserve, NCUA, and OCC--have the
authority to conduct reviews of any aspect of banks' activities,
including compliance with applicable consumer protection laws, such as
SCRA.[Footnote 22] OCC charters and supervises national banks and
federal thrifts. The Federal Reserve supervises state-chartered banks
that opt to be members of the Federal Reserve System, bank holding
companies, thrift holding companies, and the nondepository institution
subsidiaries of those institutions. FDIC supervises FDIC-insured state-
chartered banks that are not members of the Federal Reserve System, as
well as federally insured state savings banks and thrifts. NCUA
charters and supervises federally chartered credit unions and insures
savings in federal and most state-chartered credit unions. [Footnote
23] OCC regulates the vast majority of mortgage servicing in the
United States. For example, OCC-regulated servicers accounted for
close to 80 percent of the unpaid principal balance on serviced
mortgages in the third quarter of 2011. The prudential regulators
conduct risk-based examinations of the institutions they oversee on a
routine basis. Because examinations are risk-based and there are a
number of consumer compliance laws for which examiners assess
compliance during an examination, SCRA compliance is not assessed
during every examination.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act) established CFPB and provided it with the authority to
regulate mortgage servicers with respect to federal consumer financial
law.[Footnote 24] Consumer financial protection functions from seven
existing federal agencies were transferred to the new agency.[Footnote
25] For mortgage servicers that are depository institutions with more
than $10 billion in assets or their affiliates, CFPB will have
exclusive supervisory authority and primary enforcement authority to
ensure compliance with federal consumer financial law.[Footnote 26]
Additionally, if a mortgage servicer is a nondepository institution,
CFPB will have both supervisory and enforcement authority to ensure
compliance with federal consumer financial law.[Footnote 27] Finally,
CFPB will have rulemaking authority with respect to mortgage
servicers, including authority that transfers from other federal
agencies such as the Federal Reserve and the Federal Trade Commission.
[Footnote 28] SCRA, however, was not one of the enumerated laws for
which oversight transferred to CFPB. The prudential regulators remain
responsible for overseeing compliance with the law for any of the
entities they supervise that are servicing mortgages.
Other federal agencies are involved in the mortgage market by
operating mortgage programs aimed at expanding homeownership for
populations who may encounter difficulties in obtaining mortgages. For
example, FHA has played a large role in assisting minority, lower-
income, and first-time homebuyers in obtaining mortgages. FHA's
program insures private lenders against losses from borrower defaults
on mortgages that meet FHA criteria for properties with one to four
housing units. As of September 2011, almost 3,700 lending institutions
were approved to participate in FHA's mortgage insurance programs for
single-family homes. FHA also offers special protections for
servicemembers who have FHA-insured loans. For example, FHA-approved
lenders are authorized to postpone principal payments and foreclosure
proceedings for servicemembers on active duty who have FHA-insured
mortgages.[Footnote 29]
VA is also active in the mortgage market through its Home Loan
Guaranty program, which provides lenders a guaranty on a portion of
mortgage loans for eligible veterans, active duty servicemembers,
surviving spouses, and members of the reserve components in
recognition of their service. According to VA, the program operates by
substituting the federal government's guaranty for a down payment that
might otherwise be required. VA guarantees a portion of the mortgage
loan in the event that borrowers default, providing lenders with
substantial financial protections against some of the losses that may
be associated with extending such mortgage loans. In 2011, VA
guaranteed over 350,000 loans to veteran borrowers.
The Housing and Economic Recovery Act of 2008 created the Federal
Housing Finance Agency (FHFA) and gave it responsibility for, among
other things, the supervision and regulation of the housing-related
enterprises: Fannie Mae, Freddie Mac, and the 12 federal home loan
banks.[Footnote 30] Specifically, FHFA was assigned responsibility for
ensuring that each of the regulated entities operates in a safe and
sound manner, including maintenance of adequate capital and internal
controls, and carries out its housing and community development
finance mission. FHFA has no direct authority over mortgage servicers,
but does have authority to ensure that the housing enterprises are
being run safely and soundly, as well as the power to impose
operational, managerial, and internal control standards on the
companies.
SCRA Eligibility, Violations, and Compliance:
SCRA Requirements Limit Eligibility for Mortgage Protections:
The total number of servicemembers eligible for the mortgage
protections provided by SCRA is not known, but the size of this
population is likely limited because the act provides protections only
to servicemembers who meet certain eligibility requirements. The
maximum number of servicemembers potentially eligible for mortgage
protections under SCRA at any one time includes those servicemembers
on active duty service and those who have recently left it.[Footnote
31] According to DOD, between 2007 and 2010 about 2 million
servicemembers, including those activated from the reserve components,
were on active duty.[Footnote 32] However, the number of
servicemembers who may actually qualify for the SCRA mortgage
protections is a smaller portion of this population because some of
the act's protections only extend to servicemembers who obtained their
mortgages prior to entering active duty service or servicemembers
whose military service materially affects their ability to pay their
mortgage. However, representatives from all the mortgage servicers
with whom we spoke stated that they do not assess whether a
servicemember's ability to pay has been materially affected by their
active duty status and that they provide eligible servicemembers SCRA
protections regardless of whether their ability to pay is materially
affected or not.
According to DOD officials, representatives from industry trade
groups, SCRA experts, and military service organizations, the
servicemembers most likely to be eligible for SCRA mortgage
protections are members of the reserve components. These
servicemembers are more likely to have had mortgages prior to entering
active duty service and some may potentially experience a decline in
their incomes as they leave their civilian employment and begin
receiving their military pay. We have previously reported, however
that servicemembers belonging to the reserve components on average
earn more income while activated.[Footnote 33] According to DOD
officials, the number of servicemembers activated from the reserve
components from 2007 through 2010 was approximately 576,500.
The maximum number of servicemembers who are eligible for SCRA
mortgage protections is also a smaller portion of the total military
population because many do not own homes for which they have taken out
mortgage loans. According to the Census Bureau, the U.S. homeownership
rate was about 67 percent in 2010. However, research shows that
servicemembers are generally less likely to own their own homes.
[Footnote 34] For example, according to DOD's 2008 annual Status of
Forces surveys--surveys that DOD sends annually to active duty
servicemembers and members of the reserve components to evaluate
various programs and policies and their impact on servicemembers--only
34 percent of active duty servicemembers and 55 percent of reserve
component servicemembers reported that they owned or made mortgage
payments on a home in the previous 12 months.[Footnote 35] However,
even those military families who have mortgages may not be eligible
for SCRA protections. First, some SCRA mortgage protections only apply
to servicemembers who took out their mortgage before being placed on
active duty. Also, given that mortgage interest rates have been at
historic lows in recent years, servicemembers who took out mortgage
loans during this period before being placed on active duty may be
likely to have loans with rates lower than the SCRA-mandated level of
6 percent.
Thousands of Mortgage-Related SCRA Violations Have Been Identified to
Date:
Although the total number of SCRA violations is not known, thousands
of SCRA violations have been identified from a number of sources.
First, DOJ--which is responsible for enforcing SCRA--settled
investigations in 2011 with two mortgage servicers and identified 165
instances of active duty servicemembers who had their homes foreclosed
upon without the mortgage servicer seeking the proper court order as
required by the act.[Footnote 36] Second, in July 2011, as part of its
investigation into SCRA violations, the U.S. House of Representatives
Committee on Oversight and Government Reform sent letters to 10 large
mortgage servicers requesting them to identify the total number of
improper foreclosures and interest-rate and fee violations they had
committed. In their responses, 6 mortgage servicers reported having
conducted a total of at least 148 improper foreclosures against
servicemembers and failing to reduce interest rates or fees on the
mortgages for over 14,000 servicemembers since 2005. Third, as the
result of a class-action lawsuit filed by several servicemembers, as
of January 2012, Chase Home Finance, LLC had issued refunds to
approximately 13,500 borrowers for interest and fees charged in excess
of SCRA protections since 2005.[Footnote 37] Many of the mortgage
servicers involved in these investigations are among the largest in
the industry and service millions of loans. Table 1 summarizes the
various SCRA violations identified by these sources to date.
Table 1: Violations of SCRA Mortgage Protections Identified through
Various Reviews:
Mortgage servicer: BAC Home Loans Servicing;
Source of data: DOJ;
Period in review: Jan. 2006-May 2009;
Number of improper SCRA foreclosures identified: 143;
Number of instances in which interest rates and fees charged were not
reduced: Not specified.
Mortgage servicer: Wells Fargo;
Source of data: Self-reported;
Period in review: Foreclosure - Jan. 2006-June 2010; Interest rate and
fees - Jan. 2006-June 2011;
Number of improper SCRA foreclosures identified: 17;
Number of instances in which interest rates and fees charged were not
reduced: 3,224.
Mortgage servicer: JPMorgan Chase;
Source of data: Self-reported;
Period in review: Jan. 2005-July 2011;
Number of improper SCRA foreclosures identified: 54;
Number of instances in which interest rates and fees charged were not
reduced: 10,000.
Mortgage servicer: JPMorgan Chase;
Source of data: Class action settlement;
Period in review: Jan. 2005-Jan 2012;
Number of improper SCRA foreclosures identified: Not specified;
Number of instances in which interest rates and fees charged were not
reduced: 13,500.
Mortgage servicer: Citi;
Source of data: Self-reported;
Period in review: Foreclosure-Jan. 2007-June 2011;
Interest rate and fees-Jan. 2006-June 2011;
Number of improper SCRA foreclosures identified: 0;
Number of instances in which interest rates and fees charged were not
reduced: 140.
Mortgage servicer: Ally Financial;
Source of data: Self-reported;
Period in review: Not specified;
Number of improper SCRA foreclosures identified: 77;
Number of instances in which interest rates and fees charged were not
reduced: 923.
Mortgage servicer: PHH Mortgage;
Source of data: Self-reported;
Period in review: Jan. 2006-June 2011;
Number of improper SCRA foreclosures identified: 0;
Number of instances in which interest rates and fees charged were not
reduced: 304.
Mortgage servicer: SunTrust Mortgage;
Source of data: Self-reported;
Period in review: Not specified;
Number of improper SCRA foreclosures identified: 0;
Number of instances in which interest rates and fees charged were not
reduced: 2.
Mortgage servicer: Saxon Mortgage Services, Inc.;
Source of data: DOJ;
Period in review: Jan. 2006-Dec. 2010;
Number of improper SCRA foreclosures identified: 22;
Number of instances in which interest rates and fees charged were not
reduced: Not specified.
Source: GAO analysis of DOJ complaints and mortgage servicers'
responses to House Committee on Oversight and Government Reform
requests.
[End of table]
Through their compliance examinations, prudential regulators
identified 251 instances of SCRA compliance problems at depository
institutions between 2007 and 2011. FDIC identified the vast majority--
230--of these issues, with Federal Reserve staff identifying 16, OCC
staff identifying 4, and NCUA staff identifying 1 instance. However,
these SCRA compliance issues may not specifically concern mortgages--
for example, they may have involved non-mortgage-loan products, such
as credit card loans.
A more complete picture of the extent of SCRA violations may result
from three large-scale federal agency reviews that are ongoing. Recent
enforcement actions taken by DOJ, Federal Reserve, and OCC require
mortgage servicers to conduct historical reviews of their mortgage
loan files to determine if servicemembers who were eligible for the
SCRA mortgage protections received them, among other things. If
violations are identified, the mortgage servicers are required to
provide compensation to the servicemembers. Appendix II contains a
detailed explanation of these reviews.
In the wake of identified SCRA violations, some mortgage servicers
have implemented procedures to enhance their compliance with SCRA.
Some large mortgage servicers have instituted several military status
checks during the foreclosure process. For example, one large mortgage
servicer now requires its foreclosure counsel to check a customer's
military status prior to the initiation of foreclosure proceedings, 1
week prior to a foreclosure sale, and 1 day prior to the scheduled
sale date. Some mortgage servicers have also created dedicated
customer service support for military servicemembers, including
telephone hotlines and websites. For example, representatives from one
mortgage servicer told us that they had developed a dedicated team
that is staffed with former servicemembers to assist customers with
SCRA requests. These customer-support representatives also receive
training on military financial issues and serve as the points of
contact for any problems with delinquency, remediation, and
foreclosure.
Finally, as a result of identified violations and SCRA investigations,
some servicemembers will be receiving SCRA protections that go beyond
those stated in the act. For example, three mortgage servicers that
responded to the House Committee on Oversight and Government Reform
letters noted that they have reduced the interest rate they charge on
servicemembers' mortgages to 4 percent--which is below the 6 percent
required in SCRA. Additionally, the National Mortgage Settlement
between the federal government, 49 state attorneys general, and five
large mortgage servicers that occurred in February 2012 requires the
five mortgage servicers to implement new mortgage servicing standards.
These new standards expand protections to certain servicemember
customers of these five mortgage servicers beyond those provided in
SCRA. For example, the new standards extend foreclosure protections to
any servicemember--regardless of whether their mortgage was obtained
prior to active duty status--who is receiving Hostile Fire/Imminent
Danger Pay or is serving at a location more than 750 miles away from
their home. This means that any servicemember meeting these conditions
and living in a nonjudicial state who obtained a mortgage after
obtaining active duty status could not be foreclosed upon without a
court order. More information on the National Mortgage Settlement is
contained in appendix II.
Mortgage Servicers and Others Cited Challenges to Complying with SCRA:
Representatives from some mortgage servicers and industry associations
cited challenges that make complying with SCRA difficult. First,
mortgage servicers may not know at the time a mortgage is originated
whether a borrower will be eligible for SCRA protections in the
future. For example, a borrower would become eligible for SCRA
mortgage protections after obtaining his or her mortgage by joining
the active duty military or being called into active duty service
while serving as a member of the reserve components. Therefore,
mortgage servicers may not be able to flag loans at origination that
could potentially become eligible for SCRA protections at a later
date. Second, representatives from some mortgage servicers and
industry associations also noted that military orders, which
servicemembers must provide to their mortgage servicers in order to
receive the SCRA interest rate protection, can be difficult to
interpret. In particular, a representative from one mortgage servicer
noted that the orders do not always clearly specify the start and end
dates of active duty service and that the format and content of these
orders can vary considerably across services, which may lead to
mistakes by mortgage servicer personnel responsible for determining
eligibility. Further, a DOD official explained that in some instances,
military orders may not be available in a timely manner. For example,
he stated that members of the reserve components may be alerted that
their unit is being mobilized on a certain date; however, the
servicemembers may not get the actual military orders until weeks
later. This delay could lead to problems for both a servicemember and
a mortgage servicer. For example, if a servicemember has been
deployed, he or she may encounter difficulties sending orders to his
or her mortgage servicer. Without the orders, a mortgage servicer may
encounter difficulties verifying the servicemember's active duty start
date in order to appropriately adjust their payment amounts.
One of the primary tools mortgage servicers use to comply with SCRA is
a website operated by DOD's Defense Manpower Data Center (DMDC) that
allows mortgage servicers and others to query DMDC's database to
determine the active duty status of a servicemember. DMDC collects,
archives, and maintains DOD personnel data. Representatives from
mortgage servicers indicated that they use this website to confirm if
a borrower is an active duty servicemember and may be eligible for
SCRA protections and that they rely on the site to confirm if a
servicemember is on active duty status prior to conducting a
foreclosure. Representatives from one mortgage servicer also noted
that they use the website to confirm the period of time that borrowers
are eligible for the SCRA interest rate protections. The website is an
important compliance tool because servicemembers are eligible for the
foreclosure protections even if they do not notify their mortgage
servicers that they are serving on active duty.
However, many representatives from mortgage servicers and industry
associations with whom we spoke cited challenges with the usability of
the website. Moreover, confusion appears to exist in the mortgage
servicing industry about the availability of information in the
database. For example, prior to April 2012, the website only allowed
mortgage servicers to inquire about borrowers' active duty status one
individual at a time. The inability to test large numbers of borrowers
simultaneously--known as batch testing--made confirming borrowers'
SCRA eligibility difficult given the large volumes of mortgages that
some institutions service. Representatives from some mortgage
servicers also indicated that sometimes the personnel information
available from DMDC is not complete or accurate and that the database
may produce a false-negative result. That is, it will indicate that
servicemembers were not on active duty status when in fact they were.
DMDC officials explained that information contained in the database
depends on information provided to DMDC by the various services.
Therefore, if a service has not reported a servicemember to DMDC as
being on active duty status, the database will report that the
servicemember is not on active duty. Additionally, representatives
from mortgage servicers told us that they believe some servicemembers
are not listed in the database. For example, one explained that, in
some instances they have received orders from servicemembers, but when
they query the database to confirm the active duty status, the
servicemembers are not listed as on active duty. Other mortgage
servicer representatives believed that some servicemembers may not be
listed in the database for national security reasons, such as those
serving in the Special Forces. However, DMDC officials told us that
active duty status is updated for all servicemembers, including those
on special operations.
To help address these challenges, DOD is working with the mortgage
servicing industry and industry associations to improve both the
usability of the website and the readability of military orders.
First, to aid mortgage servicers' ability to query the database, DMDC
has developed and implemented a way for mortgage servicers and others
to conduct batch queries of the database from the website for up to
250,000 servicemembers at a time.[Footnote 38] DOD officials also
noted that they are trying to develop the capability of the database
to query historical information and also to distinguish between those
active duty periods for servicemembers in the National Guard that
provide SCRA protections and those that do not.
Second, DOD has collaborated with the financial industry through the
Financial Services Roundtable's Housing Policy Council--a consortium
of financial institutions that provide mortgage credit--to develop an
alternative military order form that servicemembers can attach to or
provide in lieu of their military orders when requesting relief under
SCRA from their mortgage servicers. This form is intended to be easier
for mortgage servicers to interpret as it is shorter and more
standardized than official orders, which can vary by service.
According to DOD officials, this alternative form was approved by DOD
in December 2011 and has been distributed to the military services as
well as to financial institutions and is being used by servicemembers.
Federal Regulators' Oversight of SCRA Compliance Has Been Limited:
Prudential Regulators Examine for SCRA Compliance Based on Risk
Factors:
Prudential regulators--FDIC, Federal Reserve, NCUA, and OCC--are
responsible for supervising depository institutions' compliance with
various federal consumer laws including SCRA. Consumer compliance
examinations are one of the primary tools regulators use to assess
this compliance. Prudential regulators all use a risk-based approach
to consumer compliance examinations to determine which areas to
target, with areas of higher risk receiving greater focus during
examinations. For example, according to the FDIC consumer compliance
examination manual, riskier areas may include ones that involve
regulatory changes or complex products. Regulatory officials also told
us that because of this risk-based approach, SCRA may not be included
or fully addressed within the scope of an examination. For example,
officials from one regulator told us that when deciding to include
SCRA in an examination they may consider, among other things, consumer
complaints, internal audit results of the institution's compliance
management system, and problems raised in the media. Regulators also
use the risk-based approach to determine the specific examination
procedures they use to assess compliance. Areas of higher risk would
be subject to more extensive review procedures, while areas of lower
risk would receive less extensive review. For example, according to
OCC's examination manual, areas of greater risk may involve more
extensive testing of loan transactions for compliance.
In 2009, the regulators developed interagency examination procedures
related to SCRA through the Federal Financial Institutions Examination
Council (FFIEC), including a specific checklist that examiners can use
in their examinations.[Footnote 39] The interagency SCRA procedures
and checklist indicate that examiners should determine whether
depository institutions applied and properly calculated interest-rate
reductions, whether any foreclosures were conducted without a court
order, and whether any servicemember requests for SCRA protection were
inappropriately reported as adverse information to a credit reporting
agency. Additionally, the interagency procedures suggest, among other
things, that examiners (1) consider reviewing SCRA policies,
procedures, and account documentation when assessing the adequacy of
the institution's internal controls and (2) review whether the
depository institution's compliance reviews and audit materials
include transaction testing of samples covering relevant product
types. The checklist contains a series of questions related to
different sections of SCRA, including the ones that apply to
residential mortgages.
In addition to routine risk-based consumer compliance examinations,
prudential regulators conduct targeted reviews of areas of high
concern. For example, FDIC, Federal Reserve, and OCC conducted an
interagency review of the foreclosure policies and practices of 14
mortgage servicers in late 2010, in response to the large number of
foreclosures since 2007 and continued weaknesses in the mortgage
market. The examiners evaluated the adequacy of each mortgage
servicer's operating procedures and controls and preparation of
foreclosure documentation, among other things. Although the
interagency review was not intended to directly assess SCRA
compliance, during the course of this effort, two mortgage servicers
nonetheless identified SCRA compliance problems.[Footnote 40]
Additionally, in June 2011, OCC issued guidance to all of its
regulated institutions that required them to conduct self-assessments
of their foreclosure management practices. OCC examiners will review
the self-assessments in the subsequent examination of the
institutions.[Footnote 41]
Oversight of SCRA Compliance Varied by Institution, Year, and
Regulator:
The extent to which SCRA was reviewed varied by the size of the
depository institution, the year in which the examination took place,
and the regulator that conducted the examination from 2007 through
2011. Based on our review, we estimate that from 2007 through 2011,
prudential regulators reviewed SCRA compliance in at least one
examination for 48 percent of all the institutions they oversaw that
serviced mortgages.[Footnote 42] This estimate includes documentation
of an SCRA review for any type of loan product (e.g., residential
mortgage, credit card, automobile, and other types of products). Some
of the reasons bank examiners cited for including SCRA in the scope of
an examination included the need to follow up on previous violations
and deficiencies, changes in regulatory requirements, and
identification of SCRA loans being serviced. To determine the extent
to which SCRA compliance was included in examinations of depository
institutions and the procedures examiners used to assess SCRA
compliance, we reviewed workpapers for examinations conducted by FDIC,
Federal Reserve, NCUA, and OCC. We reviewed the workpapers for
examinations from 2007 to 2011 for a sample of 152 institutions that
service mortgages they hold in their loan portfolios or service
mortgages for other institutions.[Footnote 43] The 152 institutions
represented a stratified random sample of institutions based on size
and regulator examined from 2007 through 2011. Because officials from
some regulators told us that they may not conduct an examination for
every institution every 12 months, and because SCRA might not be
covered in each risk-based examination, we looked at examinations
spanning a 5-year period.
Based on our sample, we found that prudential regulators included a
review of SCRA compliance in at least one examination for a greater
percentage of large institutions than all other institutions. In this
report, the 40 large institutions are comprised of the 10 largest
mortgage servicers regulated by each of the four prudential
regulators. Specifically, we found that about 70 percent of these
large institutions were reviewed for SCRA compliance at least once
from 2007 through 2011 compared with an estimated 48 percent of all
other institutions for the same period.[Footnote 44] Officials from
one regulator indicated that one reason for this difference might be
that the larger institutions conducted more mortgage lending than
smaller institutions; therefore, examiners may be more likely to
review SCRA compliance at larger institutions.
We also found that the extent to which examiners reviewed for SCRA
compliance varied by year. In 2010, examinations for SCRA compliance
occurred in an estimated 26 percent of all institutions, compared with
2007 when about 4 percent of all institutions were reviewed for SCRA.
Figure 2 shows the distribution in the percentage of institutions
examined for SCRA compliance for each year from 2007 through 2011.
Some of the regulatory officials told us that reasons for the
differences by year may include the adoption of SCRA interagency
examination procedures in 2009 and increased attention to the impacts
of the financial crisis on servicemembers in recent years.
Figure 2: Estimated Percentage of Depository Institutions That
Serviced Mortgages That Were Examined for SCRA Compliance by Year,
2007 through 2011:
[Refer to PDF for image: horizontal bar graph]
Year: 2007;
Estimated percentage: 4%;
Confidence interval: 1-11%.
Year: 2008;
Estimated percentage: 17%;
Confidence interval: 11-26%.
Year: 2009;
Estimated percentage: 18%;
Confidence interval: 11-26%.
Year: 2010;
Estimated percentage: 36%;
Confidence interval: 18-34%.
Year: 2011;
Estimated percentage: 15%;
Confidence interval: 8-23%.
Source: GAO analysis of prudential regulator examination workpapers.
Note: The percentage of institutions that had an examination in each
year is not mutually exclusive. This means that one institution could
have had an examination that addressed SCRA in more than 1 year. The
error bars represent 95 percent confidence intervals for each of these
estimates. The confidence intervals represent the upper and lower
bounds of our estimates.
[End of figure]
We also found that among just the 40 large institutions, a greater
percentage had an SCRA compliance review in 2010 and 2011 compared
with earlier years:
* in 2010 and also in 2011, about 40 percent of the institutions had
an SCRA review,
* about 13 percent of these institutions were reviewed for SCRA
compliance in 2009,
* about 23 percent of these institutions were reviewed for SCRA
compliance in 2008, and:
* in 2007, 10 percent were reviewed for SCRA compliance.[Footnote 45]
Our analysis also revealed differences by regulator in the extent to
which SCRA was reviewed for compliance. Figure 3 shows that both FDIC
and Federal Reserve reviewed a significantly higher percentage of
institutions for SCRA compliance compared with NCUA and OCC. It also
shows that OCC reviewed a greater percentage of institutions than
NCUA. NCUA officials explained that the agency does not have a
separate consumer compliance examination function and that consumer
compliance is part of its overall evaluation of the safety and
soundness of institutions. The officials said that given the recent
economic crisis, the agency has placed more focus on the safety and
soundness of credit unions than on compliance with consumer
regulations. They said that this is part of the reason the percentage
of credit unions that received an SCRA compliance review is so low.
However, our prior work has found that mortgage servicing problems,
including inadequate controls over foreclosure processes, have led to
risks to the safety and soundness of depository institutions.[Footnote
46]
Figure 3: Estimated Percentage of Depository Institutions That
Serviced Mortgages That Were Examined for SCRA Compliance by
Regulator, 2007 through 2011:
[Refer to PDF for image: horizontal bar graph]
Regulator: Federal Reserve;
Estimated percentage: 92.70%;
Confidence interval: 76.0-99.1%.
Regulator: FDIC;
Estimated percentage: 99.90%;
Confidence interval: 86.8-99.9%.
Regulator: NCUA;
Estimated percentage: 0.02%;
Confidence interval: 0.02-0.03%.
Regulator: OCC;
Estimated percentage: 20.30%;
Confidence interval: 7.9-38.9%.
Source: GAO analysis of prudential regulator examination workpapers.
Note: Error bars in this graph represent the 95 percent confidence
intervals for estimates displayed. Six of the depository institutions
in the sample were regulated by the Office of Thrift Supervision (OTS)
until July 2011. The Dodd-Frank Act eliminated OTS and supervisory
authority of these six depository institutions was transferred to OCC.
We included these six institutions in our sample strata for large and
OCC-regulated institutions because at the time we selected our sample,
these six institutions were under OCC's supervisory authority. OCC
officials explained that OTS conducted most of the examinations of
these institutions during the period we reviewed and that OTS's
examination practices related to SCRA may have differed from those of
OCC.
[End of figure]
For the estimated 52 percent of institutions that were not examined
for SCRA compliance from 2007 through 2011, examiners did not document
their reasons for excluding SCRA for at least 95 percent of these
institutions.[Footnote 47] In our review, we found four examinations
for which examiners had documented in the workpapers a reason for not
including SCRA compliance. For three of these examinations, the reason
cited was that examiners had recently examined for SCRA compliance and
found no violations, deficiencies, or other concerns. The fourth
examination reviewed the depository institutions' progress in
addressing consumer compliance issues identified in the previous
examination and because SCRA compliance was not one of the issues of
concern identified in the previous examination, it was excluded from
the examination we reviewed.
Regulatory officials offered a few reasons to explain why an examiner
may not include SCRA compliance in an examination. For example,
officials from one regulator said that some depository institutions
might not serve large military populations. Therefore, examiners might
not consider compliance with SCRA mortgage protections a substantial
risk to these institutions. Additionally, officials from one
prudential regulator indicated that examiners may choose to exclude
SCRA compliance from an examination if the institution had received
few complaints concerning SCRA-related issues. The regulators
indicated that they had received very few SCRA complaints related to
residential mortgages between 2007 and 2011 compared with the number
of consumer complaints they received overall during this period.
[Footnote 48]
Examiners Generally Used Limited Loan Testing:
As part of our review of examination workpapers for the 152
institutions in our sample, we collected information on the procedures
examiners used to assess compliance with SCRA if an examination
reviewed residential mortgage loans or if the workpapers did not
specify the loan product being addressed. We included examinations in
which the loan product was not specified to help ensure that we
reviewed any examination procedures that may have addressed
residential mortgages. Our review found a total of 83 institutions for
which examiners either reviewed SCRA compliance for residential
mortgage loans or did not specify the loan product being reviewed. The
figures presented for this analysis are not generalizable to the
population of institutions that service mortgages. After reviewing
examination guidance and auditing standards, we grouped examiners'
documented examination procedures into three categories based on our
professional judgment as to the extent that each type of procedure
would provide assurance that financial institutions were complying
with SCRA:
* Interviews with depository institution personnel. This category
includes activities in which examiners interviewed staff at the
depository institution for information on, among other things, their
compliance management systems and whether the institution services
loans to servicemembers eligible for SCRA protections.
* Assessments of depository institutions' compliance management
systems. This category includes instances in which examiners
documented that they reviewed the quality of depository institutions'
compliance management systems, such as reviewing institutions' SCRA
policies and procedures, internal controls, and training programs.
* Testing loan files for SCRA compliance. This category includes
activities such as testing a limited number of loan files the
institution identified as SCRA-eligible or conducting more
comprehensive testing, such as reviewing a statistical sample of loan
files.
Of these categories, the first category--interviews with depository
institution personnel--provides the least assurance of SCRA compliance
because the examiner would be relying primarily on assertions provided
by institution personnel rather than an independent assessment or
verification of these assertions. The second category--assessments of
institutions' compliance management systems--provides greater
assurance of SCRA compliance because these procedures require
examiners to independently assess the quality of the depository
institutions' procedures and internal controls. The final category--
testing of loan files--provides even greater assurance of SCRA
compliance because examiners can independently verify whether the
institution's personnel provided all necessary SCRA protections.
Although in many examinations examiners documented that they used an
assortment of examination procedures from different categories to
assess compliance with SCRA, we categorized each of the 83
institutions whose SCRA compliance was assessed during the 5-year
period of our review by the highest assurance level of the examination
procedures that were used in any of the examinations done of that
institution from 2007 through 2011. Based on this analysis, we found
that only about half of these institutions had any testing conducted
during this 5-year period. Specifically, of these 83 institutions, we
found that:
* 6 institutions had examinations during this period that relied on
interviews of depository institution staff to assess SCRA compliance
as their highest category of examination procedure,
* 36 institutions had examinations in which the highest category of
examination procedure used to assess SCRA compliance was to review the
institution's compliance management system, and:
* 41 institutions had examinations that involved testing of loan files
as the highest category of examination procedure--the examination
procedure category that provides a greater level of assurance for SCRA
compliance than the previous two categories.
However, at the 41 institutions at which examiners tested loan files,
we found that the type of testing conducted was limited. Examiners can
choose from different types of testing methods that provide differing
levels of assurance that an institution is complying with SCRA. For
example, within the testing category, testing a limited sample of loan
files that depository institutions identified as SCRA-eligible
provides less assurance of compliance because it relies on assertions
by depository institutions of SCRA eligibility, whereas testing a
statistical sample of loans provides greater assurance because it
allows examiners to independently select files for testing, and the
results would be representative of the institution's compliance. In
the examinations we reviewed, the examiners mostly tested a limited
sample of loans that the depository institution had identified as SCRA-
eligible and, therefore, provided less assurance that the institution
was complying with SCRA. We found no instances between 2007 and 2011
in which examiners tested a statistical sample of either loans in
foreclosure or mortgage loan files in general, which would have
provided the greatest assurance of an institution's SCRA compliance.
By testing only foreclosure files or mortgage loan files that the
depository institution had identified as SCRA-eligible, examiners
cannot fully determine if the institution has appropriately identified
all eligible servicemembers. By expanding the scope of testing to
include a larger sample of foreclosure and mortgage loan files, beyond
just those files that the depository institution had identified as
SCRA-eligible, examiners could better ensure that institutions are
appropriately identifying eligible servicemembers and providing them
all of the protections to which they are entitled. To minimize the
burden on institutions and examiners, such reviews could be conducted
as part of samples of loans drawn for examining compliance with other
regulatory requirements.
Coordination of SCRA Oversight Lacking:
In addition to the prudential regulators, other federal agencies
conduct oversight of SCRA compliance. SCRA authorizes DOJ to commence
a civil action against any person who engages in a pattern or practice
of violating the act or if a violation of the act raises an issue of
significant public importance.[Footnote 49] DOJ staff indicated that
they consider military attorneys to be the most likely staff to help
ensure that a servicemember is afforded their SCRA protections. For
cases in which a military attorney is unable to obtain voluntary
compliance from a mortgage servicer or other person or entity doing
business with a servicemember, DOJ has a system in place to receive
referrals for these cases and to open investigations. DOJ officials
told us and military attorneys confirmed that, in most cases, military
attorneys are able to resolve SCRA matters without referring them to
DOJ. DOJ also receives referrals for SCRA investigations from private
attorneys and individual servicemembers and their families. When DOJ
receives an SCRA referral, officials investigate the matter and
determine if a full investigation should be opened.[Footnote 50]
Investigations can result in DOJ filing a civil action against the
party in court for alleged SCRA violations, or a resolution with the
party may be reached without filing the case in court.
DOJ filed a total of five cases in court from 2007 through 2011 for
SCRA violations. Two of these cases--BAC Home Loans Servicing, LP and
Saxon Mortgage Services, Inc.--involved SCRA violations regarding
servicemembers' mortgages. In May 2011, DOJ took enforcement actions
against both mortgage servicers for wrongfully foreclosing upon active
duty servicemembers without obtaining court orders. DOJ alleged that
both mortgage servicers did not consistently check the military status
of borrowers on whom they foreclosed, resulting in 165 improper
foreclosures between 2006 and December 2010 (as listed previously in
table 1). In its enforcement actions, DOJ required each of these
mortgage servicers to pay damages to servicemembers and conduct a
variety of remedial actions. For example, BAC Home Loans Servicing
agreed to pay at least $20 million to resolve the lawsuit, and Saxon
Mortgage Services agreed to pay at least $2.35 million. The mortgage
servicers were also required to, among other things, (1) implement
revised SCRA policies and procedures for using the DMDC website, (2)
implement a foreclosure monitoring program, (3) provide SCRA
compliance training to all applicable employees, and (4) conduct
reviews to identify additional servicemembers who may have had their
SCRA rights violated and compensate them. Appendix II discusses these
reviews in more detail. In addition to the 5 SCRA cases DOJ filed in
court, DOJ opened 45 additional SCRA investigations from referrals it
received between 2007 and 2011, 9 of which involved servicemembers'
mortgages.[Footnote 51] One of these referrals involved a
servicemember's request to waive the prepayment penalty on her
mortgage when she received a permanent change-of-station order and
sold her home to move closer to the new base. DOJ was able to reach a
resolution with the mortgage servicer without trying the case in
court. Another investigation involved allegations of a mortgage
servicer charging interest in excess of the SCRA maximum of 6 percent.
DOJ officials stated that this investigation was resolved in favor of
the servicemember. Finally, in February 2012, DOJ settled with five of
the nation's largest mortgage servicers for a variety of improper
mortgage servicing procedures, including allegations of SCRA
violations. More information on the National Mortgage Settlement is
contained in appendix II.
Other federal agencies that operate mortgage programs also oversee
certain aspects of SCRA compliance. For example, to participate in
FHA's mortgage programs, mortgage servicers must comply with the
agency's program requirements, which include complying with all
applicable laws and regulations, including SCRA. FHA officials
explained that they use a risk-based approach to monitor the
institutions that service the loans the agency insures. Officials told
us that from 2007 through 2011, FHA conducted about 200 mortgage
servicer monitoring reviews. They explained that each review consists
of a sample of the mortgage servicer's loan files and FHA staff use a
checklist to help ensure that the mortgage servicer is in compliance
with a variety of servicing requirements for each loan in the sample.
One of the requirements reviewed for each loan is the distribution of
the HUD counseling notice that includes information on SCRA
eligibility to borrowers who are at least 45 days delinquent. Agency
officials explained that a more thorough review of SCRA compliance is
conducted if a mortgage servicer has identified that the borrower is
an active duty servicemember. For loans that a mortgage servicer has
marked with a code to indicate that the borrower is an active duty
servicemember, FHA staff conduct additional steps to better ensure
that the mortgage servicer has provided the servicemember appropriate
SCRA protections, as well as additional protections that FHA provides
to active duty servicemembers who have FHA-insured loans. These steps
include ensuring that the interest rate has been appropriately
adjusted and that foreclosure was postponed. FHA officials stated that
they rely on mortgage servicers to appropriately identify active duty
servicemembers. Although they may review SCRA compliance on specific
loans, FHA officials told us that their reviews are not intended to
assess the adequacy of the mortgage servicers' SCRA compliance
policies and procedures or to determine whether these policies are
functioning for all of a servicer's activities. As a result of FHA's
servicer monitoring reviews, some SCRA compliance problems have been
identified. For example, FHA officials told us that between 2007 and
2011 the agency found two instances of SCRA noncompliance during its
mortgage servicer monitoring reviews. One of these instances involved
a mortgage servicer failing to send the HUD counseling notice that
includes information on SCRA eligibility to borrowers delinquent 45 or
more days, and the other violation involved a mortgage servicer
failing to verify a borrower's active duty status prior to foreclosure.
Although VA interacts with mortgage servicers as part of its Home Loan
Guaranty Program, VA officials explained that the program currently
does not conduct in-depth reviews of mortgage servicers' policies and
procedures and loan files to review overall compliance with SCRA
mortgage protections. The officials explained that they are in the
process of finalizing a program that will conduct on-site audits of
mortgage servicers' functions and that they expect the program to be
implemented in late 2012. VA officials explained that this program
will include reviews of servicers' loan files and policies and
procedures for monitoring and identifying SCRA-eligible borrowers to
determine servicers' overall compliance with SCRA mortgage
protections. Officials explained that in the wake of recently
identified SCRA violations, they conducted a review of all VA loan
files that were in foreclosure from October 2009 to January 2011 to
determine if any of the borrowers were possibly eligible for SCRA
mortgage protections. The officials said that they identified
approximately 30,000 borrowers in foreclosure during that period and
that they conducted an in-depth review of 47 loans that were
potentially eligible for SCRA mortgage protections. VA determined that
none of these borrowers were improperly foreclosed upon. They have
recently expanded this review to include a longer time period, but as
of June 2012, they had not completed the review to determine if any
borrowers were improperly foreclosed upon.
VA officials explained that they do conduct reviews of the adequacy of
servicing being conducted by servicers. These reviews--Adequacy of
Servicing reviews--are conducted on all loans over 120 days delinquent
to determine if servicers have provided adequate servicing to
borrowers, but according to VA officials, they are intended to explore
loss mitigation options and not to examine for SCRA compliance. The
officials explained that during these reviews, VA reviews mortgage
servicers' notes on the account to determine if they have provided
adequate servicing to the borrower. Specifically, they check to see if
the mortgage servicer has contacted the borrower, if a reason for
default has been determined, if loss mitigation options have been
considered, and why any loss mitigation options that were considered
were not completed. Officials explained that if the mortgage servicer
has taken the appropriate steps, VA would determine that the servicing
provided was adequate. If VA determines that the servicing being
provided was not adequate, or if the servicer was unable to contact
the borrower, it conducts supplemental servicing on the loan and works
with the borrower directly to explore loss mitigation options.
According to VA officials, they may learn during these reviews that
the loan involves an active duty servicemember. However, the Adequacy
of Servicing reviews currently do not evaluate the extent to which
servicers have assessed whether borrowers are eligible for SCRA
mortgage protections. They also explained that while their procedures
for conducting these reviews do not address reviewing for compliance
with SCRA mortgage protections, VA loan technicians encourage
borrowers to review their SCRA mortgage protections with military
attorneys. Additionally, VA officials explained that they do not have
a mechanism for tracking if these reviews have identified SCRA-
eligible borrowers. As part of VA's mission to serve servicemembers,
VA officials told us that they try to ensure that servicemembers have
received every opportunity to keep their homes and avoid foreclosure.
VA officials explained that they rely on federal regulators to
investigate and enforce statutory requirements, such as SCRA. However,
given that VA staff also oversee servicers' activities, they do have
the opportunity to review servicers' efforts to determine SCRA
eligibility, such as by making an inquiry with the servicer of the
loan or consulting DOD records to determine if the borrower is an
active duty servicemember. Without such a review, the extent to which
the agency is ensuring servicemembers are receiving all protections to
which they are entitled is not clear.
The enterprises--Fannie Mae and Freddie Mac--also conduct SCRA
compliance monitoring at the mortgage servicers that service loans on
their behalf. This monitoring focuses on enforcing contractual
requirements between the enterprises and mortgage servicers to ensure
that mortgage servicers are following the servicing guidelines issued
by the enterprises. The servicing guidelines outline mortgage
servicers' compliance obligations for several different laws and
regulations, including SCRA. The SCRA components of the guidelines
include information for mortgage servicers on, among other things, how
SCRA relief is initiated and how interest rates are reduced, as well
as foreclosure proceedings and credit reporting. Enterprise officials
explained that SCRA compliance is not included in each review
conducted. If it is included, Fannie Mae officials explained that
examiners seek to understand how a mortgage servicer checks for SCRA
compliance and conducts testing of the servicers accounting methods
for SCRA compliance.[Footnote 52] For example, if a servicemember has
an interest rate that is greater than 6 percent, examiners test to
ensure that interest rate and payment amounts have been properly
reduced. Freddie Mac officials told us they assess the mortgage
servicer's understanding of SCRA and the procedures in place to ensure
compliance. The enterprises' SCRA compliance monitoring efforts have
identified some instances of noncompliance. For example, Fannie Mae
identified 13 instances of noncompliance with its SCRA guidelines
between 2007 and 2011, and Freddie Mac has identified 2 instances.
These instances of noncompliance involved issues such as mortgage
servicers not having comprehensive SCRA compliance policies and
procedures and mortgage servicers not properly verifying the active
duty status of servicemembers. Officials from FHFA--the enterprises'
regulator--stated that its supervisory focus for SCRA compliance is to
confirm that the enterprises are taking steps to ensure that the
mortgage servicers with which they have contracts comply with the
contracts' requirements which include compliance with applicable laws.
Although the prudential regulators, FHA, VA, and FHFA all have a role
in helping ensure that mortgage servicers provide appropriate SCRA
protections to eligible servicemembers, currently none of these
entities share information related to SCRA compliance with one
another.[Footnote 53] While the extent of oversight conducted by these
entities varies, they do review for some of the same SCRA provisions,
such as those related to interest rate reductions and foreclosures.
Furthermore, some of the mortgage servicers that participate in FHA's
and VA's loan programs and service loans on behalf of the enterprises
are also subject to oversight by one of the prudential regulators,
which review for SCRA compliance during their examinations. Although
these agencies obtain SCRA-related information about many of the same
institutions, FHA, VA, and FHFA officials stated that they have not
coordinated with the prudential regulators on SCRA compliance issues.
Further, FHFA officials stated that while they participate in some
forums with the prudential regulators to coordinate on various issues,
they were not aware of any coordination related to SCRA compliance.
In our work on the many agencies that are involved in the federal
financial regulatory system, we have previously stated that
collaboration among financial regulatory agencies with common
responsibilities is essential to ensuring consistent and effective
supervisory practices.[Footnote 54] Further, we have previously
reported that federal agencies and prudential regulators do coordinate
on oversight of other consumer protection laws, such as the Fair
Housing Act and Equal Credit Opportunity Act, known collectively as
"fair lending laws."[Footnote 55] Similar to oversight of SCRA,
responsibility for oversight of the fair lending laws is shared among
the prudential regulators and other federal agencies, including DOJ,
HUD, and the Federal Trade Commission. We reported that these agencies
had taken several steps to establish common policies and procedures
and share information about their fair lending oversight programs. For
example, the agencies established the Interagency Fair Lending Task
Force to develop a coordinated approach to address discrimination in
lending and adopted a policy statement on how the various agencies
were to conduct oversight and enforce the fair lending laws. At that
time, federal officials said that coordinating on fair lending issues
allows the agencies to exchange information on a range of common
issues, informally discuss fair lending policy, and confer about
current trends or challenges in fair lending oversight and
enforcement. FHFA officials explained that the agency has existing
memorandums of understanding with prudential regulators and HUD that
establish the protocols they use to discuss trends, risks, and other
emerging issues on a variety of topics with these other agencies, but
that SCRA has not been a topic during these discussions. FHFA does not
currently have a memorandum of understanding with VA to share
information, but the officials explained that they have worked with
the agency in the past on issues such as appraisals and that they have
done so through letter arrangements that allow them to share
information. These existing arrangements could provide a mechanism for
SCRA information to be shared between FHFA and the prudential
regulators, FHA, and VA. However, currently no such sharing
arrangements exist between the prudential regulators, FHA, and VA.
Although FHA, VA, and the enterprises that FHFA oversees have
identified limited instances of SCRA violations in recent years, the
sharing of information related to SCRA trends, emerging risks, or
types of weaknesses found in mortgage servicers' policies among all
agencies that play a role in SCRA compliance oversight could increase
awareness of potential problems and improve their ability to identify
SCRA violations.
Challenges in Ensuring Servicemembers' Awareness of SCRA Protections:
DOD and DHS Education Efforts:
Under SCRA, DOD services' Secretaries and the Secretary of Homeland
Security have the primary responsibility for ensuring that
servicemembers receive information on their SCRA rights and
protections.[Footnote 56] Servicemembers are informed of their SCRA
rights in a variety of ways. For example, briefings are provided on
military bases and during deployment activities; legal assistance
attorneys provide counseling; and a number of outreach media, such as
publications and websites, are aimed at informing servicemembers of
their SCRA rights. According to DOD officials, the legal assistance
attorneys are primarily responsible for leading the military's SCRA
education efforts. Each of the military services, including the Coast
Guard under DHS, operates a number of legal assistance offices
throughout the country.[Footnote 57] Legal assistance offices are
operated by military and civilian legal assistance attorneys who are
responsible for providing support to servicemembers on a variety of
legal issues, including family law and estate planning.[Footnote 58]
As part of their responsibilities, they inform servicemembers about
their rights and benefits under SCRA.
Legal assistance attorneys provide SCRA support to servicemembers
using various methods. We spoke with legal assistance attorneys at six
military installations across the five services. They told us that
they provide servicemembers with information on SCRA during routine
briefings on military installations, in handouts, and during one-on-
one sessions with individual servicemembers. Two legal assistance
attorneys told us that they alert installation staff, including unit
commanders, to direct servicemembers to their legal assistance offices
if they have a problem. Legal assistance attorneys also told us that
they will contact depository institutions on behalf of servicemembers
to help them receive their SCRA protections. Some legal assistance
attorneys also told us that they provide templates of letters for
servicemembers to send to their mortgage servicer to request a
reduction in their mortgage interest rate. Additionally, legal
assistance attorneys told us that they will refer servicemembers to
the American Bar Association's (ABA) Military Pro Bono Project if they
are unable to resolve an SCRA matter for a servicemember. ABA's
program connects active duty servicemembers to pro bono attorneys who
assist them with civil legal problems.[Footnote 59]
SCRA requires that servicemembers be informed of the rights and
protections available under SCRA upon entry into the military, during
initial orientation training, and, in the cases of members of the
reserve components, when called to active duty for a period of more
than 1 year.[Footnote 60] Predeployment briefings generally occur at
the military installation that deploys the servicemember and, in
addition to SCRA, cover a range of other legal and financial issues,
such as the preparation of wills and powers of attorney. According to
DOD officials, members of the reserve components may receive this
briefing numerous times at their home station prior to deployment.
Servicemembers are also provided with an additional opportunity to
learn about their rights under SCRA upon returning from deployment.
According to DOD officials, because some SCRA protections extend for a
9-or 12-month period beyond servicemembers' active duty service,
obtaining information at the end of deployment is critical for those
servicemembers who will no longer be on active duty and will lose
access to military-provided legal assistance. As a result, the Army
reserve component--which includes the Army Reserve and Army National
Guard and is the largest portion of the reserve components--requires
that members receive standardized post-deployment training on SCRA.
DOD and DHS use a number of other methods to deliver SCRA information
to servicemembers, including military training courses, publications,
websites, and other family support services. For example, DHS
officials told us that all Coast Guard members are informed of their
SCRA rights during basic training. Some others may receive additional
SCRA training during their initial officer training at the Coast Guard
Academy or other advanced classes. DOD also publishes general articles
in newsletters and installation publications explaining
servicemembers' SCRA rights and more specific articles on the
relationship between mortgage difficulties and SCRA. Additionally,
several military websites contain information on SCRA, including
websites for individual services and military installations and sites
such as Military OneSource--a DOD online resource that is staffed with
counselors who offer assistance to servicemembers on a variety of
topics, including financial counseling.[Footnote 61] DOD also provides
financial management and family support services through the family
readiness centers located at military installations. These centers
provide general financial management counseling on topics such as
reducing debt and saving for college to servicemembers' families
during periods of deployment and also share information on SCRA and
refer family members to the legal assistance office if they have an
SCRA issue.
Other SCRA Outreach Efforts:
Other federal agencies also provide SCRA outreach and support to
servicemembers and financial institutions in a variety of ways,
including oral briefings, written notifications, and websites. For
example, VA officials told us that some servicemembers who leave
active duty service participate in a multiday briefing conducted in
partnership with VA, DOD, and the Department of Labor. This briefing
discusses reentering civilian life, SCRA protections, and veterans'
benefits. Additionally, both VA and FHA provide SCRA-related outreach
to the institutions that participate in their mortgage programs. For
example, VA periodically sends written notifications to all of its
loan servicers reminding them of their compliance responsibilities and
alerts them to changes in the act when they occur. FHA also provides
information to its mortgage servicers on SCRA. Its website contains a
list of questions and answers for mortgage servicers on SCRA,
servicemembers' eligibility criteria, and FHA policies with respect to
servicing FHA-insured mortgages in compliance with SCRA.
The Consumer Financial Protection Bureau (CFPB) has an Office of
Servicemember Affairs that also plays a role in providing SCRA
outreach to servicemembers and mortgage servicers responsible for
complying with the act. As of May 30, 2012, CFPB officials had
conducted 37 visits to military installations and National Guard units
and met with legal assistance attorneys to discuss consumer protection
issues servicemembers have been facing, including SCRA. CFPB also sent
letters to 25 large mortgage servicers in 2011 alerting them of
servicemembers' rights under SCRA and their responsibilities to comply
with the act. The letters specifically urged mortgage servicers to
educate their employees about SCRA and review their loan files to
ensure compliance with the law. Additionally, CFPB has held meetings
in which representatives from DOD and DHS and other federal agencies,
financial institutions, and trade associations discussed issues
related to SCRA compliance. CFPB officials also held a forum in which
financial institutions discussed activities--some that go beyond those
required by SCRA--they were undertaking to assist servicemembers' with
their mortgages. In July 2011, CFPB and the Judge Advocate Generals of
the Army, Marine Corps, Navy, Air Force, and Coast Guard developed a
joint statement of principles to provide stronger protections for
servicemembers in connection with consumer financial products and
services. Finally, through its consumer response function, CFPB also
works directly with servicemembers by collecting consumer complaints
against depository institutions and coordinating those complaints with
servicemembers' depository institutions and if necessary, the
appropriate legal assistance offices.
Finally, military servicemember groups also assist servicemembers with
SCRA issues. Organizations such as the National Military Family
Association, the Military Officers Association of America, the Reserve
Officers Association, and others provide information on SCRA to their
members in a variety of ways. A representative from one military
servicemember group explained that its website--which contains
background information on SCRA and legal reviews of specific SCRA
provisions--is the group's primary means of providing information to
servicemembers and the public on SCRA issues. Other representatives
with whom we spoke said that they provide information to their members
when changes to SCRA have occurred. For example, one military
servicemember group highlights applicable legislative changes in
weekly electronic notifications to its members.
Servicemembers Face Challenges Asserting Their SCRA Protections,
Raising Questions about Training Effectiveness:
DOD officials, legal assistance attorneys, and representatives of
military servicemember groups with whom we spoke noted a number of
challenges with ensuring that servicemembers are aware of their SCRA
protections. One main challenge cited was servicemembers' retention of
the SCRA information they receive from DOD and DHS. Attorneys at each
of the six legal assistance offices told us that servicemembers are
not aware of the full extent of their SCRA rights. In addition,
several military servicemember group representatives, a National Guard
Bureau official, and an SCRA expert told us that despite available
information on SCRA, servicemembers are not adequately prepared to
invoke their rights when needed.
According to DOD officials, the bulk of the SCRA education provided to
servicemembers occurs at military installations that focus on regular
active duty servicemembers. However, members of the reserve
components--those most likely to qualify for SCRA's mortgage
protections--may not be located at military installations and,
therefore, have less access to these services and trainings. One DOD
official told us that members of the reserve components may receive
SCRA briefings at their home station. However, legal assistance
attorneys at five of the six legal assistance offices with whom we
spoke told us that members of the reserve components have limited
access to legal assistance offices on military installations when they
are not on active duty. Having this limited access to legal assistance
could affect reserve components members' ability to avail themselves
of their SCRA protections when needed. Additionally, some members of
the reserve components face geographic challenges with accessing legal
assistance offices due to their distance from military installations.
About half of the military installations in the United States are
located in just 10 states, while members of the reserve components
live throughout the country. For example, the Chief Legal Assistant
for the Ninth Coast Guard District explained that the legal assistance
office for that district is located in Cleveland, Ohio, but the office
provides legal services to the entire Great Lakes Region.
Another challenge in ensuring that servicemembers are aware of their
SCRA protections when needed is the effectiveness of the educational
briefings provided by DOD and DHS. As discussed above, SCRA requires
that servicemembers receive SCRA training upon entry into the
military, during initial orientation training, and, for members of the
reserve components, when called to active duty for a period of more
than 1 year. However, legal assistance attorneys who conduct this
training and military servicemember groups explained that its
effectiveness is diminished because of the volume of information
presented, the timing of the training, and the availability of legal
assistance resources. For example, four military officials told us
that during predeployment activities and annual National Guard weekend
training activities, servicemembers attend multiple, back-to-back
briefings, which cover a variety of legal and financial issues that
are focused on a number of important topics, such as family law and
estate planning. One military attorney referred to these briefings as
"baptism by a fire hose" when trying to illustrate the volume of
information provided to servicemembers at these critical times.
Further, military attorneys with whom we spoke told us that the amount
of time legal assistance attorneys are able to spend with
servicemembers during pre-and postdeployment activities is limited due
to the volume of servicemembers deploying and returning from
deployment. For example, one military attorney told us that legal
assistance attorneys might assist 250 deploying servicemembers with
their legal affairs prior to deployment and that during deployment
there is limited time available to provide legal assistance. Another
legal assistance attorney stated that it would be beneficial for
members of the reserve components to have more time to access military
legal assistance resources when they return from deployment because of
concerns that they do not retain the information they receive during
postdeployment briefings. One legal assistance attorney that assists
members of the reserves specifically explained that when he provides
SCRA-related briefings to deployed servicemembers who should have
received SCRA briefings prior to deployment; many seem like they are
hearing the information for the first time. He suggested that
servicemembers' retention of information could be improved if
deploying servicemembers receive more comprehensive briefings with
smaller groups of servicemembers. Additionally, a National Guard
Bureau official told us that predeployment briefings contain too much
information for servicemembers to absorb, including the relatively
small portions of the briefings that include information on SCRA.
These methods of providing SCRA information to servicemembers raise
concerns about their ability to retain the information they receive
during these trainings.
Without adequate awareness, servicemembers may not take full advantage
of their protections under SCRA. As discussed above, the methods of
SCRA training and outreach provided by DOD and DHS to regular active
duty servicemembers and members of the reserve components may not be
adequate to ensure that these servicemembers are aware of and
benefiting from the full protections provided by the act. In 2008, DOD
asked in its annual Status of Forces Surveys if active duty
servicemembers and members of the reserve components had received SCRA
trainings. Forty-seven percent of members of the reserve components--
including those who had been activated in 2008--reported in the survey
that they had received SCRA training and only 35 percent of regular
active duty servicemembers reported that they had received training.
[Footnote 62] While these numbers may not reflect the number of
servicemembers who received SCRA training, they do provide an
indication as to the number of servicemembers who recalled receiving
such training. DOD also surveys servicemembers on a variety of issues
related to their benefits; however, according to DOD officials who
conduct these surveys, servicemembers have not been surveyed on the
effectiveness of DOD's SCRA educational efforts. DHS officials also
told us they have not evaluated the effectiveness of their SCRA
education methods to members of the Coast Guard and Coast Guard
Reserve. In addition to surveying servicemembers on the effectiveness
of SCRA-related education methods, DOD and DHS could use other
techniques to assess the effectiveness of their education efforts. For
example, servicemembers could be tested after a period of time to
determine how much information they retained from the SCRA component
of their predeployment briefings. Additionally, focus groups could be
held with servicemembers to review the understandability of written
materials provided on SCRA. Without understanding the extent to which
existing SCRA educational efforts are effective, DOD and DHS are not
able to determine if their methods are adequate to ensure that
servicemembers avail themselves of the benefits to which they are
entitled.
Conclusions:
Ensuring that mortgage servicers fully comply with SCRA can protect
servicemembers from undue financial harm. Our analysis of risk-based
compliance examinations conducted by the four prudential regulators
estimated that about half of all the depository institutions that
serviced mortgages were reviewed for SCRA compliance from 2007 through
2011. However, during these examinations, examiners only conducted
testing of loan files at 41 of the 83 institutions for which we
reviewed the procedures used by examiners over the 5-year period to
verify that mortgage servicers' SCRA compliance processes and controls
were functioning properly. For these 41 institutions, examiners did
not use the testing procedures most likely to detect instances of
noncompliance. Examination guidance and auditing standards suggest
that testing is a part of effective monitoring. Furthermore,
additional testing of loan files using methods that provide greater
assurance of compliance is warranted given that thousands of
violations at some large mortgage servicers have been documented
through federal agencies' targeted reviews and mortgage servicers' own
internal reviews, but not through the prudential regulators' routine
compliance examinations. Without additional testing of foreclosure
files and, as appropriate, other mortgage loan files not identified by
the depository institution as SCRA-eligible, and without employing
testing methods that provide greater assurance of compliance,
prudential regulators may not be able to determine whether these
institutions are extending protections to all eligible servicemembers.
Although not a direct regulator of financial institutions that service
mortgages, VA does interact with mortgage servicers as part of its
Home Loan Guaranty program and therefore has an interest in ensuring
that these institutions are complying with SCRA. However, the current
level of monitoring that VA conducts of mortgage servicers that
participate in its program provides little assurance that eligible
servicemembers with VA-guaranteed loans are receiving their full SCRA
mortgage protections. By not routinely reviewing mortgage servicers'
overall compliance with SCRA mortgage protections, the agency cannot
be assured that mortgage servicers participating in its program have
policies and procedures that function properly to provide these
protections. The agency's development of a new program to conduct on-
site audits of mortgage servicers' overall operations provides a good
opportunity for the agency to expand its efforts related to SCRA
compliance. Further, if VA determines that servicers' loss mitigation
efforts have either not been successful or adequate during its
Adequacy of Servicing reviews, it provides supplemental servicing on
loans. During its Adequacy of Servicing reviews and while conducting
supplemental servicing, VA would have the opportunity to take steps to
determine if servicers assessed whether borrowers were eligible for
SCRA protections. Because the agency's entire mission is dedicated to
benefiting individuals who have served the country through military
service, expanding its procedures to review for SCRA compliance at
mortgage servicers that participate in its mortgage program could help
the agency achieve its mission and better ensure that servicemembers
are receiving all benefits to which they are entitled.
Because multiple federal agencies' play a role in ensuring that
mortgage servicers provide SCRA protections to eligible
servicemembers, sharing information on SCRA compliance could benefit
these agencies' respective SCRA oversight efforts. Most agencies
responsible for SCRA oversight conduct risk-based reviews and
therefore do not always include SCRA compliance in their reviews.
Sharing information on SCRA compliance issues could alert agencies to
potential problems and improve agencies' ability to identify SCRA
violations. We have previously found that collaboration among
supervisory agencies can lead to more effective supervision and that
such collaboration does occur for certain consumer compliance laws.
However, no such sharing of information related to SCRA compliance
information currently takes place routinely between the prudential
regulators, FHA, VA, and FHFA. Further, because these entities monitor
SCRA compliance at many of the same institutions, the sharing of
information could help them to more quickly identify compliance
problems that may adversely affect servicemembers. Many of these
agencies already have existing mechanisms for sharing information that
could be used or expanded to periodically share information on SCRA
compliance.
The Secretaries of the Army, Navy, Air Force, and Homeland Security
are responsible for educating servicemembers on their SCRA rights. DOD
and DHS provide this information through a variety of methods
throughout servicemembers' military careers. However, servicemembers
may often be unaware of their SCRA rights for a variety of reasons,
such as the volume and variety of information they must retain from
educational briefings. Members of the reserve components in particular
face unique challenges that can affect whether they learn of and are
able to obtain assistance with SCRA protections because they have more
limited access to military legal assistance locations and to SCRA-
related training opportunities. Additionally, the recently created
CFPB's Office of Servicemember Affairs has been working with DOD and
DHS to identify opportunities to increase servicemembers' awareness of
SCRA protections and its results could provide useful information to
assist in this effort. While DOD has surveyed servicemembers on
whether they had received SCRA training, neither DOD nor DHS has
assessed the effectiveness of their educational methods to determine
if better ways exist to ensure that servicemembers retain the
information they receive on SCRA and can recall it when they need it.
Without such an assessment, such as by using focus groups of
servicemembers or testing to reinforce retention of SCRA information,
DOD and DHS may not be able to ensure they are reaching servicemembers
in the most effective manner.
Recommendations for Executive Action:
To better ensure SCRA compliance oversight, we recommend that the
Comptroller of the Currency, the Chairman of the Board of Governors of
the Federal Reserve System, the Chairman of the Federal Deposit
Insurance Corporation, and Chairman of the National Credit Union
Administration take steps to increase the frequency with which
examiners (1) conduct testing of foreclosure files and as applicable,
other mortgage loan files; and (2) employ testing methods that provide
greater assurance that mortgage servicers are complying with SCRA.
To help ensure that VA assists servicemembers with remaining in their
homes and avoiding foreclosure, the Secretary of Veterans Affairs
should ensure that a review for SCRA compliance is included in the
department's new mortgage servicer monitoring program and that
additional steps to assess SCRA compliance are taken by VA staff
during its Adequacy of Servicing reviews and while conducting
supplemental servicing.
Additionally, to increase agencies' awareness of potential problems
with SCRA compliance, the Comptroller of the Currency, the Chairman of
the Board of Governors of the Federal Reserve System, the Chairman of
the Federal Deposit Insurance Corporation, the Chairman of the
National Credit Union Administration, the Acting Director of the
Federal Housing Finance Agency, the Secretary of Housing and Urban
Development, and the Secretary of Veterans Affairs should explore
options to use existing mechanisms or develop new ones to share
information related to SCRA compliance oversight.
Finally, the Secretary of Defense--through the Secretaries of the
Army, Air Force, and Navy--and the Secretary of Homeland Security
should assess the effectiveness of their efforts to educate
servicemembers on SCRA to determine better ways for making
servicemembers aware of their SCRA rights and benefits, including
improving the ways in which members of the reserve components obtain
such information.
Agency Comments and Our Evaluation:
We requested comments on a draft of this report from CFPB, DHS, DOJ,
DOD, FDIC, Federal Reserve, FHFA, HUD, NCUA, OCC, and VA. We received
formal written comments from DHS, DOD, FDIC, Federal Reserve, FHFA,
HUD, NCUA, OCC, and VA; these are presented in appendixes III through
XI, respectively. We also received technical comments from CFPB, DOJ,
DOD, FDIC, Federal Reserve, FHFA, OCC, and VA, which we incorporated
as appropriate.
Federal Reserve, NCUA, and OCC agreed to take actions in response to
our recommendations that they increase the frequency with which their
examiners conduct testing of mortgage and foreclosure files and employ
testing methods that will provide greater assurance of mortgage
servicers' compliance with SCRA.
* The Federal Reserve's Director of the Division of Consumer and
Community Affairs noted that Federal Reserve examiners apply
interagency examination procedures to test the sufficiency of a
depository institution's program for ensuring its employees provide
appropriate protections to active duty servicemembers, and that it
will work with the other federal financial regulators to consider
appropriate ways to update the interagency SCRA examination
procedures. The Director's letter notes that Federal Reserve considers
interviews with bank staff and reviews institutions' compliance
management systems to be types of examiner testing. Although our
report acknowledges that such steps can provide useful information
regarding an institution's SCRA compliance, we recommended that the
regulators provide greater assurance of SCRA compliance by increasing
the frequency of loan file testing.
* NCUA's Executive Director agreed that additional testing of loan
files would provide greater assurance of SCRA compliance. His letter
also notes that NCUA has made recent changes to its examination
process to raise the importance of consumer protection issues, noting
that beginning with its 2011 examinations, staff separate from safety
and soundness examiners review the lending practices of federal credit
unions to ensure compliance with SCRA. Further, NCUA noted that it has
also incorporated reviews for SCRA compliance into its analysis and
investigations of complaints.
* The Comptroller of the Currency noted that OCC will update its
examination guidelines to ensure that a review of SCRA compliance is
conducted during each supervisory cycle for its regulated
institutions, and that such reviews will include the testing of loan
files selected using an appropriate methodology to assess compliance
with SCRA.
FDIC's Director of their Division of Depositor and Consumer Protection
did not comment on our recommendation but agreed that testing a
representative sample of loans for compliance with SCRA is an
effective tool to assess compliance with SCRA for large mortgage
servicers. However, his letter also noted that having examiners
interview bank employees also serves as an effective tool for
assessing compliance with consumer protection laws and regulations,
and that such interviews are often used to verify that the depository
institution is conducting sufficient employee training and is
enforcing its policies and procedures. We agree that conducting
interviews of depository institution personnel can be a useful
procedure to examine for SCRA compliance, but supplementing such
actions with increased testing of loan files provides an even greater
level of assurance that an institution is complying with SCRA.
VA concurred with our recommendation that they ensure that a review
for SCRA compliance is included in its new mortgage servicer
monitoring program and also indicated their staff would be taking
additional steps to assess SCRA compliance during Adequacy of
Servicing reviews and while conducting supplemental servicing. In a
written response, VA's Chief of Staff noted several activities the
agency conducts to help ensure that veterans are aware of their SCRA
protections. He stated that VA will revalidate and, as necessary,
revise its focus and procedures to ensure veteran borrowers are
receiving all SCRA protections to which they are entitled.
Additionally, he noted that VA will include in its mortgage servicer
monitoring program a review to ensure that servicers' appropriately
afford SCRA-eligible borrowers their mortgage protections as part of
their loss mitigation efforts. Finally, he said that VA will
incorporate additional steps into its Adequacy of Servicing reviews to
assess whether the servicer appropriately provided SCRA mortgage
protections to eligible borrowers.
Federal Reserve, FHFA, HUD, NCUA, OCC, and VA agreed with our
recommendation that the federal agencies involved in overseeing
mortgage servicers' SCRA compliance should explore using existing
mechanisms or developing new ones to share information related to SCRA
compliance oversight.
* Federal Reserve Division of Consumer and Community Affairs Director
noted that additional interagency collaboration related to SCRA
compliance trends and emerging risks may be appropriate and useful in
improving supervisory practices related to SCRA compliance, and she
agreed to explore other opportunities to share information related to
SCRA compliance with other federal agencies. She stated that their
staff are currently planning an interagency servicemember financial
protection webinar for financial industry participants that is to
include panelists from the federal supervisory agencies, as well as
representatives from other agencies with SCRA oversight responsibility.
* FHFA's Deputy Director for the Division of Enterprise Regulation
also agreed that increased information sharing among supervisors of
mortgage lending industry participants could assist in identifying
potential compliance problems and in some cases could improve the
identification of SCRA violations. He noted that FHFA's supervision
function will consider whether the agency's existing memorandums of
understanding are sufficient or should be expanded to cover more types
of information or more agencies to broaden information sharing on
issues of supervisory concern, including SCRA compliance. He also
noted that the supervision function would consider whether compliance
oversight would be improved by developing processes for more frequent
routine communications with supervisors of other market participants
subject to mortgage lending compliance requirements.
* HUD's Acting Assistant Secretary for Housing-Federal Housing
Commissioner agreed that HUD should participate in agencies'
discussions to explore options to share information related to SCRA
compliance, noting that HUD's should be a participatory role rather
than a leadership one because it does not have responsibility for
overseeing SCRA. Her letter also notes they believe that the scope of
such collaboration should be broadened beyond just SCRA compliance to
include all agencies' mutual interests in single family housing
issues, which we agree could be useful.
* The NCUA Executive Director's letter notes that NCUA will use its
participation in FFIEC and other interagency working groups to share
information regarding the supervision of financial institutions and
compliance concerns, and that it currently shares information with
CFPB regarding consumer compliance oversight and is working with
federal financial regulators to develop tools to facilitate
information sharing.
* The Comptroller of the Currency stated in his response that OCC will
continue to be an active member of the FFIEC Task Force on Consumer
Compliance, which is an interagency organization that works
collectively to develop examiner guidance and examination procedures
and to discuss emerging risks or trends regarding new products and
services. He also noted that OCC, the other prudential regulators, and
CFPB have signed a memorandum of understanding on supervisory
coordination that outlines the coordination of examinations and the
sharing of compliance oversight information, including information on
SCRA.
* VA's Chief of Staff noted that VA will collaborate with the agencies
involved in SCRA compliance oversight to share information related to
SCRA compliance.
FDIC did not comment on this recommendation.
DHS concurred and DOD partially concurred with our recommendation that
they assess the effectiveness of their efforts to educate
servicemembers on SCRA to determine better ways for making
servicemembers aware of their SCRA rights and benefits, including
improving the ways in which members of the reserve components obtain
such information. DHS's Director of Departmental GAO-OIG Liaison
Office noted that the Coast Guard strives to keep all its members
fully aware of SCRA benefits and rights and that it will explore
measures to assess the effectiveness of these efforts in the future.
DOD's Office of Legal Policy Director stated that the education and
protection of servicemembers is DOD's highest priority and that it
continuously evaluates the effectiveness of training to servicemembers
on their protections under SCRA and that it will continue to do so
bearing our recommendation in mind. His letter also notes that DOD
recently testified before Congress on efforts to conduct a survey on
financial issues affecting servicemembers which will further inform
DOD's efforts.
We are sending copies of this report to appropriate congressional
committees, the Chairman of the Board of Governors of the Federal
Reserve System, the Secretary of Defense, the Chairman of the Federal
Deposit Insurance Corporation, the Acting Director of the Federal
Housing Finance Agency, the Secretary of Homeland Security, the
Secretary of Housing and Urban Development, the Chairman of the
National Credit Union Administration, the Comptroller of the Currency,
the Secretary of Veterans Affairs, the Director of the Consumer
Financial Protection Bureau, and the U.S. Attorney General. The report
also is available at no charge on the GAO website at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-8678 or sciremj@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix XII.
Signed by:
Mathew Scirè:
Director:
Financial Markets and Community Investment:
List of Requesters:
The Honorable Jeff Miller:
Chairman:
The Honorable Bob Filner:
Ranking Member:
Committee on Veterans' Affairs:
House of Representatives:
The Honorable Dan Benishek:
House of Representatives:
The Honorable Gus Bilirakis:
House of Representatives:
The Honorable Bruce Braley:
House of Representatives:
The Honorable Corrine Brown:
House of Representatives:
The Honorable Jeff Denham:
House of Representatives:
The Honorable Joe Donnelly:
House of Representatives:
The Honorable Bill Flores:
House of Representatives:
The Honorable Tim Huelskamp:
House of Representatives:
The Honorable Doug Lamborn:
House of Representatives:
The Honorable Michael Michaud:
House of Representatives:
The Honorable Silvestre Reyes:
House of Representatives:
The Honorable Phil Roe:
House of Representatives:
The Honorable Linda Sanchez:
House of Representatives:
The Honorable Cliff Stearns:
House of Representatives:
The Honorable Marlin Stutzman:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our objectives were to examine (1) what is known about Servicemembers
Civil Relief Act (SCRA) eligibility, the number of violations that
have occurred, and practices financial institutions use to comply with
SCRA; (2) what oversight financial regulators and other federal
agencies have taken to help ensure depository institutions' compliance
with the act; and (3) actions the Department of Defense (DOD),
Department of Homeland Security (DHS), Department of Veterans Affairs
(VA), and others have taken to ensure that servicemembers and others
are informed of protections provided under the act. With the exception
of our regulatory compliance review, the scope of our review includes
only SCRA protections related to servicemembers' residential mortgages.
SCRA Compliance:
To describe what is known about the practices depository institutions
use to comply with SCRA, we interviewed representatives from a non-
generalizable sample of four large mortgage servicers and one national
consumer credit reporting agency about their SCRA compliance practices
and challenges and reviewed relevant policies and procedures. We
selected 4 mortgage servicers that were among the 10 largest based on
data from the Consolidated Reports of Condition and Income (Call
Reports) on the unpaid principal balance of residential mortgages
institutions own and service, plus mortgage loans they service on
behalf of other institutions, and mortgage servicers that had
participated in either the prudential regulators' interagency review
of foreclosure policies and practices or the U.S. House of
Representatives Committee on Oversight and Government Reform's
investigation.[Footnote 63] We interviewed representatives of
financial industry trade associations, including those that represent
the mortgage industry, depository institutions with a large military
customer base, and the credit reporting industry. We also interviewed
officials from DOD's Defense Manpower Data Center, which operates the
website that depository institutions and others use to verify the
active duty status of servicemembers. To determine what is known about
SCRA violations that have occurred we reviewed letters from 10 large
mortgage servicers written in response to a House of Representatives
Committee on Oversight and Government Reform investigation on mortgage
servicers' SCRA compliance history and practices. We also reviewed
data on SCRA violations found during bank and credit union
examinations conducted from 2007 through 2011 by the prudential
regulators--the Board of Governors of the Federal Reserve System
(Federal Reserve), the Federal Deposit Insurance Corporation (FDIC),
the National Credit Union Administration (NCUA), and the Office of the
Comptroller of the Currency (OCC). We also reviewed available
information from legal actions taken by the Department of Justice
(DOJ) against two mortgage servicers for SCRA violations and a class
action settlement against a large mortgage servicer for SCRA
violations. Finally, we reviewed DOJ, Federal Reserve, and OCC
enforcement actions against mortgage servicers for, among other
things, foreclosure documentation problems that require the mortgage
servicers to conduct reviews, which are currently ongoing, to
determine historical SCRA violations.
SCRA Compliance Oversight:
To assess the oversight prudential regulators have taken to help
ensure depository institutions' compliance with SCRA, we reviewed
their examination policies and procedures and interviewed agency
officials about their oversight activities related to SCRA. We also
reviewed interagency examination procedures and checklists the
regulators developed in 2009 to aid their oversight of SCRA. To assess
the extent to which prudential regulators examined for SCRA, we
selected a stratified random sample of 160 institutions from the
population of all depository institutions that serviced mortgages as
of November 2011 for institutions regulated by FDIC, Federal Reserve,
and OCC, and September 2011 for institutions regulated by NCUA. We
developed a certainty stratum composed of the 10 largest institutions
regulated by each of the four prudential regulators--FDIC, Federal
Reserve, NCUA, and OCC--for a total of 40 institutions. The remaining
120 institutions comprised an additional four strata of institutions
of varying sizes--one stratum per prudential regulator. We used the
Call Reports to identify mortgage servicers based on data the
institutions reported on the unpaid principal balance of residential
mortgages they own and service, plus mortgage loans they service on
behalf of other institutions.[Footnote 64] We selected credit unions
that service mortgage loans using data from the SNL Financial Database
on the unpaid principal balance of real estate loans owned and
serviced, plus those serviced on behalf of other institutions.
[Footnote 65] We confirmed our use of the relevant mortgage variables
with the SNL Financial Database with NCUA. We excluded any depository
institutions that did not service mortgages. We then used these data
to select a stratified random sample from the population of depository
institutions that service mortgages. While we initially selected a
sample of 160 institutions (40 for each regulator), we excluded 8 of
the selected institutions from our analysis. Three institutions
regulated by the Federal Reserve were excluded because they were
recently chartered and therefore had not had an examination. We also
excluded five credit unions because they were state-chartered, meaning
that state supervisory authorities and not NCUA served as the primary
regulator for these institutions. Table 2 provides more detail on the
population, sample, and sample disposition by stratum.
Table 2: Number of Depository Institutions in Sample:
Largest 10 institutions for each regulator:
Population: 40;
Sample selected: 40;
Out of scope: 0;
In-scope sample: 40.
Remaining institutions regulated by FDIC:
Population: 4,555;
Sample selected: 30;
Out of scope: 0;
In-scope sample: 30.
Remaining institutions regulated by Federal Reserve:
Population: 807;
Sample selected: 30;
Out of scope: 3;
In-scope sample: 27.
Remaining institutions regulated by NCUA:
Population: 5,280;
Sample selected: 30;
Out of scope: 5;
In-scope sample: 25.
Remaining institutions regulated by OCC:
Population: 1,910;
Sample selected: 30;
Out of scope: 0;
In-scope sample: 30.
Total:
Population: 12,592;
Sample selected: 160;
Out of scope: 8;
In-scope sample: 152.
Source: GAO analysis of Call Report and SNL Financial Database data.
[End of table]
To determine the extent to which prudential regulators included SCRA
compliance within the scope of their examinations, we requested SCRA-
related examination workpapers, as well as documents examiners prepare
to determine the scope of their examinations for all consumer
compliance examinations the prudential regulators conducted from 2007
through 2011. We reviewed examinations conducted over a 5-year period
because regulatory officials told us that they may not conduct an
examination for a particular institution every 12 months, and because
SCRA might not be covered in each risk-based examination. We relied on
the examination documentation provided to us by the prudential
regulators to represent the full universe of examinations that were
conducted for each institution in our sample between 2007 and 2011. We
did not independently verify that the examination documentation they
provided to us represented the full universe of examinations they
conducted over this period. We reviewed the documents we received and
developed a data collection instrument (DCI) to capture the
information we found in the examination documentation in a consistent
manner. We determined that a depository institution had received an
SCRA compliance review if examination workpapers revealed an SCRA
compliance review for any type of loan product covered by the act (for
example, residential mortgages, automobile loans, or credit cards
loans). We aggregated this examination-level data to the institution
level and used the data to produce estimates of the percentage of all
institutions for which the prudential regulators included an SCRA
compliance review within an examination at least once during the 5-
year period.
Because we followed a probability procedure based on random
selections, our sample of institutions is only one of a large number
of samples that we might have drawn. Since each sample could have
provided different estimates, we express our confidence in the
precision of our particular sample's results as a 95 percent
confidence interval (for example, plus or minus 10 percentage points).
This is the interval that would contain the actual population value
for 95 percent of the samples we could have drawn. For estimates used
in this report, we report the 95 percent confidence intervals along
with the estimates themselves. We also report percentages based on the
10 largest institutions per regulator. Since these percentages are
based on the total population of such institutions, they have no
sampling error and consequently confidence intervals are not reported
for these percentages.
We reviewed examination workpapers and used our DCI to document the
procedures examiners indicated they used to assess SCRA compliance. We
only noted the examination procedures for SCRA compliance reviews that
involved residential mortgage loans or did not specify the type of
loan product covered. Eighty-three institutions in our sample met
these criteria. SCRA examination procedures for exams that solely
focused on other loan products, such as credit cards and automobile
loans, were outside the scope of our review. We then grouped the data
we collected on examination procedures into four categories:
* Requests for information from depository institutions. This includes
activities such as requests for institutions' internal audit results,
policies and procedures, SCRA complaints, and lists of SCRA loans.
[Footnote 66]
* Interviews with depository institution personnel. This includes
activities in which examiners interviewed staff at the depository
institution for information on, among other things, their compliance
management systems and whether the institution services SCRA loans.
* Assessments of depository institutions' compliance management
systems. This category includes instances in which examiners
documented that they reviewed the quality of depository institutions'
compliance management systems, such as reviewing institutions' SCRA
policies and procedures, internal controls, and training programs.
* Testing loan files for SCRA compliance. This category includes
activities such as testing a limited or statistical sampling of loans
the institution identified as SCRA-eligible or conducting more
comprehensive testing, such as reviewing a statistical sample of loan
files.
Table 3 provides additional detail on the individual examination
activities that comprise each of these categories.
Table 3: Examination Activities Identified by GAO for SCRA Compliance
Reviews:
Category of Activity: Requests for information from depository
institutions;
Examples of examination activities documented:
* Requests for lists of loans the depository institution self-
identified as SCRA-eligible;
* Requests for consumer complaints against the depository institution
involving SCRA;
* Requests for internal audit results regarding SCRA.
Category of Activity: Interviews with depository institution personnel;
Examples of examination activities documented:
* Interviews with depository institution personnel (for example,
compliance officers or senior managers) about whether they service any
SCRA loans;
* Interviews with depository institution personnel about internal
controls and other measures they take to ensure SCRA compliance.
Category of Activity: Assessments of depository institutions'
compliance management systems;
Examples of examination activities documented:
* Reviews of depository institutions' Board of Directors' or
Compliance Committee's meeting minutes regarding SCRA;
* Reviews of consumer complaints against a depository institution
(either received by the institution or the relevant prudential
regulator);
* Evaluations of the adequacy of depository institutions':
- SCRA policies and procedures;
- self-assessments on foreclosure management policies, particularly
those related to SCRA;
- SCRA compliance training programs;
* Evaluations of the functioning of a depository institution's
internal controls related to SCRA;
* Evaluations of the depository institution's internal audit results
regarding SCRA;
* Assessments of the depository institution's effort to address
previous SCRA violations or deficiencies.
Category of Activity: Testing loan files for SCRA compliance;
Examples of examination activities documented:
* Testing either a limited or a statistical sampling of loans that the
depository institution had self-identified as SCRA-eligible;
* Testing a limited or statistical sampling of a depository
institution's entire portfolio of mortgage loans for SCRA compliance.
Source: GAO analysis of prudential regulator examination workpapers.
[End of table]
We reviewed prudential regulators' examination guidance and government
auditing standards, which note that various activities can provide
increasing levels of assurance that reviewed entities are following
their stated policies and procedures and that internal controls are
functioning. Based on this review, we grouped examiners' documented
examination procedures into four categories based on our professional
judgment as to the extent to which the examination activities involved
verification of assertions made by the depository institution
regarding compliance with SCRA. For example, based on our categories,
category 1--requests for information from depository institutions--
provides the least assurance of SCRA compliance because it does not
involve an assessment of compliance, but rather the collection of
information. Category 2--interviews with depository institution
personnel--also provides less assurance because it relies primarily on
assertions provided by the institution. Whereas category 4--testing of
loan files--provides the greatest assurance of SCRA compliance within
our categories because testing loan files allows examiners to
independently verify whether an institution's compliance procedures
are functioning properly and whether SCRA protections are being
appropriately extended to eligible borrowers. Examination guidance
from three of the four prudential regulators cite the testing of
individual loan transactions as the most extensive level of review for
assurance that a depository institution is complying with laws and
regulations. They also indicate that testing a larger sample of loans,
including a statistical sample, provides a fuller assessment of
compliance than testing a limited sample. We placed institutions in
each of the four categories based on the highest level of examination
activity conducted from 2007 through 2011. The figures presented for
this analysis are not generalizable to the population of institutions
that service mortgages.
To describe the SCRA compliance oversight activities of other federal
agencies, we reviewed DOJ's policies and procedures for receiving SCRA
referrals and investigating SCRA cases and interviewed agency
officials. We also reviewed DOJ enforcement actions and investigations
that DOJ was able to resolve without filing a court case related to
servicemembers' mortgages from 2007 through 2011. We also reviewed the
SCRA compliance monitoring activities and policies and procedures of
other federal agencies that play a role in the mortgage market. These
agencies include the Federal Housing Administration (FHA), the Federal
Housing Finance Agency (FHFA), and VA. We also reviewed the SCRA
compliance monitoring efforts of two government-sponsored enterprises--
Fannie Mae and Freddie Mac. We reviewed the guidance these agencies
and enterprises provide to mortgage servicers participating in their
programs and interviewed agency officials.
Servicemember Education and Awareness:
To determine what actions DOD, DHS, VA, and others have taken to
ensure servicemembers are informed of their SCRA rights, we reviewed
the act to determine what it requires agencies to do and interviewed
two SCRA experts. To describe what actions individual agencies were
taking to inform servicemembers of their rights, we reviewed DOD and
DHS policies and procedures and SCRA training materials and
publications, and interviewed representatives from these agencies,
including officials from DOD's Office of Legal Policy, DHS, and the
National Guard Bureau. We also reviewed DOD's Status of Forces surveys
to active duty servicemembers and members of the reserve components to
determine efforts DOD has taken to assess the effectiveness of its
methods of educating servicemembers about SCRA benefits. We selected
six military installation legal assistance offices (one for the Army,
Navy, Marine Corps, and Coast Guard and two for the Air Force) based
on a geographic distribution of states with high numbers of
foreclosures and large active duty and reservist populations and
interviewed legal assistance attorneys who work in these offices to
learn how the attorneys teach servicemembers about their SCRA
protections and discuss the challenges servicemembers face asserting
those protections. The six installations were: Fort Drum, New York;
Randolph Air Force Base, San Antonio, Texas; Fort Sam Houston, San
Antonio, Texas; Marine Corps Recruit Depot, San Diego, California;
Coast Guard 9th District Command Center, Ohio; and Naval Air Station
Pensacola, Florida. We reviewed examples of SCRA training and outreach
that these offices develop and distribute to servicemembers. To learn
about the specific challenges that members of the reserve components
face, we also spoke with legal assistance attorneys from the Naval
Reserves and the Ohio National Guard who were recommended to us by
legal assistance attorneys with whom we spoke.
To determine what actions other agencies, including VA, the Consumer
Financial Protection Bureau, and FHA were taking to inform
servicemembers and others of SCRA protections, we reviewed
notifications they provide to mortgage servicers on SCRA compliance
and interviewed officials at these agencies. We also interviewed
representatives from the American Bar Association's Legal Assistance
for Military Personnel program to learn how they coordinate with legal
assistance attorneys and assist servicemembers with SCRA issues.
Finally, we interviewed representatives from seven military
servicemember groups whose memberships represent a broad population of
servicemembers and their families. These groups included the Reserve
Officers Association, National Military Family Association, Military
Officers Association of America, Air Force Sergeants Association,
National Guard Association of the United States, Naval Enlisted
Reserve Association, and Retired Enlisted Association.
We conducted this performance audit from August 2011 to July 2012 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Oversight of Mortgage Servicers' Servicemembers Civil
Relief Act Compliance:
As of June 2012, three federal agency reviews were under way to
determine if servicemembers who were eligible for SCRA mortgage-
related protections received them. A total of 14 mortgage servicers
are involved in these reviews as a result of recent enforcement
actions taken by the Office of the Comptroller of the Currency (OCC),
the Board of Governors of the Federal Reserve System (Federal
Reserve), and the Department of Justice (DOJ). While each review is
separate, some overlap exists in the institutions and timeframes being
reviewed. However, officials from DOJ told us they are coordinating
the reviews to eliminate unnecessary duplication and overlap at
institutions. DOJ also completed one review of a mortgage servicer--
Saxon Mortgage Services--in May 2012.
Federal Reserve and OCC Enforcement Actions:
In response to deficiencies in the foreclosure process that various
mortgage servicers publicly announced beginning in September 2010, OCC
and the Federal Reserve conducted a coordinated (interagency) on-site
review of 14 mortgage servicers to evaluate the adequacy of controls
over their foreclosure processes and their policies and procedures for
compliance with applicable federal and state laws.[Footnote 67] This
review identified various weaknesses and deficiencies in these
mortgage servicers' foreclosure operations, including violations of
SCRA. As a result of these reviews, OCC and the Federal Reserve issued
consent orders to the 14 mortgage servicers and their affiliates in
April 2011, requiring these institutions to make various corrective
actions. One of these actions required each of the mortgage servicers
to retain a third-party consultant to conduct independent reviews of
foreclosure actions that were initiated, pending, or completed on
primary residences from January 1, 2009 through December 31, 2010, to
identify borrowers who suffered financial injury as a result of
errors, misrepresentations, or other deficiencies in foreclosure
actions, and to remediate those borrowers, as appropriate. As part of
these independent reviews, the consultants are required to review 100
percent of the foreclosure actions during 2009 and 2010 that involved
servicemembers who may have been protected under SCRA.
Because examiners reviewed a relatively small number of foreclosure
files during the original interagency review, the reviews required by
the consent orders are intended to be more comprehensive. The consent
orders require the third-party consultants to develop detailed
sampling methodologies for identifying foreclosure actions to include
in the review. These methodologies are subject to OCC's and the
Federal Reserve's approval. OCC officials told us that, in conjunction
with DOD and DOJ, they have worked with the third-party consultants to
develop a process to access the Department of Defense's Defense
Manpower Data Center's database with custom queries in order for the
third-party consultants to accurately identify the pool of potential
SCRA-eligible borrowers. To supplement the independent reviews, the
regulators also required mortgage servicers and consultants to
establish an outreach process for borrowers, including servicemembers,
who believe they were financially harmed by improper foreclosure
practices to request a review of their foreclosure case. These
requests for review must be submitted to the mortgage servicers by
September 30, 2012. According to officials from OCC and the Federal
Reserve, as of May 2012, preliminary results from this review on
instances of SCRA noncompliance were not available.[Footnote 68]
DOJ Enforcement Actions:
On May 26, 2011, DOJ settled two cases against Saxon Mortgage Services
and BAC Home Loans Servicing for allegations of violations of SCRA's
foreclosure provision.[Footnote 69] The consent orders for each of
these cases dictated that damages be paid to affected servicemembers
and remedial actions be taken by the mortgage servicers. BAC Home
Loans Servicing agreed to pay at least $20 million to resolve the
lawsuit, and Saxon Mortgage Services agreed to pay at least $2.35
million. The consent orders also required the mortgage servicers to,
among other things, (1) implement revised SCRA policies and procedures
specifically about querying the Department of Defense's Defense
Manpower Data Center database that contains information on
servicemembers' active duty status, (2) implement a foreclosure
monitoring program, (3) provide SCRA compliance training to all
applicable employees, and (4) conduct reviews to identify additional
servicemembers who may have had their SCRA rights violated and
compensate them. The reviews required by the consent orders included
the following:
* Saxon Mortgage Services was required to review all nonjudicial
foreclosures conducted from January 1, 2006, through December 31,
2010, to determine compliance with SCRA. This review was completed in
May 2012 and a total of 22 servicemembers were identified as having
been improperly foreclosed upon.
* BAC Home Loans Servicing is required to conduct reviews for both the
foreclosure and interest-rate provisions of SCRA. Specifically, BAC
Home Loans Servicing is to review all nonjudicial foreclosures it
conducted from January 1, 2006, through December 31, 2010, for SCRA
compliance. For the interest-rate review, the consent order required
BAC Home Loans Servicing to retain an independent accounting firm to
review a statistically valid sample of home mortgage files from
January 1, 2008, through December 31, 2010, and issue a report on
whether the mortgage servicer appropriately applied interest rates and
fees to servicemembers' mortgages as required by SCRA.
DOJ officials told us that, as of June 2012, the BAC Home Loans
Servicing review is ongoing.
National Mortgage Settlement:
In February 2012, DOJ and 49 state attorneys general settled with five
of the largest national mortgage servicers for a variety of improper
mortgage servicing procedures, including allegations of SCRA
violations.[Footnote 70] The $25 billion settlement was one of the
largest financial recoveries obtained by the attorneys general in
history and contains a number of provisions related to SCRA designed
to protect servicemembers' rights and to provide them additional
benefits. To resolve allegations of liability that have not previously
been settled, five mortgage servicers--Ally Financial Inc., Bank of
America Corp., Citigroup Inc., JPMorgan Chase Bank, N.A., and Wells
Fargo & Company--agreed to conduct a full review, overseen by DOJ's
Civil Rights Division, to determine whether any servicemembers were
foreclosed on in violation of SCRA since January 1, 2006.
Additionally, four of the mortgage servicers--Ally Financial Inc.,
Bank of America Corp., Citigroup Inc., and Wells Fargo & Company--
agreed to conduct a thorough review of mortgage loans to determine
whether any servicemember, since January 1, 2008, was charged interest
in excess of 6 percent after submitting a valid request to lower the
interest rate. The agreement also specifies compensation above the $25
billion settlement amount for any SCRA foreclosure or interest-rate
violations.[Footnote 71] Compliance with the SCRA provisions of the
settlement will be overseen by DOJ's Civil Rights Division. Table 4
summarizes these three reviews.
Table 4: Summary of Ongoing and Completed Federal Agency Reviews of
Mortgage Servicers' SCRA Compliance:
Review: OCC and Federal Reserve Consent Orders;
Description of review: Under consent orders issued by OCC and the
Federal Reserve, 14 mortgage servicers are required to retain third-
party consultants to conduct independent reviews of foreclosure
actions to identify borrowers who were financially harmed as a result
of certain deficiencies;
Mortgage servicer:
* Ally Bank/GMAC Bank;
* Aurora Bank, FSB;
* Bank of America, N.A.;
* Citibank, N.A.;
* EverBank;
* HSBC Bank, USA, N.A.;
* JPMorgan Chase, N.A.;
* MetLife, N.A.;
* OneWest Bank, FSB;
* PNC Bank, N.A.;
* Sovereign Bank;
* SunTrust Bank;
* U.S. Bank, N.A.;
* Wells Fargo Bank, NA;
SCRA provision(s) reviewed: Foreclosure;
Timeframes for mortgages reviewed: 2009-2010;
(January 1, 2009 through December 1, 2010).
Review: DOJ Consent Orders Saxon Mortgage Services (Morgan Stanley)[A];
Description of review: Under the consent order, Saxon Mortgage
Services was required to review nonjudicial foreclosures (i.e.,
foreclosures that took place in states that do not require a court
order for foreclosure proceedings);
Mortgage servicer: Saxon Mortgage Services, Inc. (a subsidiary of
Morgan Stanley);
SCRA provision(s) reviewed: Foreclosure;
Timeframes for mortgages reviewed: 2006-2010;
(January 1, 2006 through December 31, 2010).
Review: BAC Home Loans Servicing (Bank of America);
Description of review: Under the consent order, BAC Home Loans
Servicing is required to review nonjudicial foreclosures (i.e.,
foreclosures that took place in states that do not require a court
order for foreclosure proceedings);
Mortgage servicer: BAC Home Loans Servicing (a subsidiary of Bank of
America);
SCRA provision(s) reviewed: Foreclosure;
Timeframes for mortgages reviewed: 2006-2010;
(January 1, 2006 through December 31, 2010).
Review: BAC Home Loans Servicing (Bank of America);
Description of review: Under the consent order, BAC Home Loans
Servicing is required to retain an independent accounting firm to
review a statistically valid sample of home mortgage files from
January 1, 2008, and issue a report on whether the mortgage servicer
appropriately applied interest rates and fees to servicemembers'
mortgages as required by SCRA;
Mortgage servicer: [Empty];
SCRA provision(s) reviewed: Interest rate;
Timeframes for mortgages reviewed: 2008-2010; (January 1, 2008 through
December 31, 2010).
Review: National Mortgage Settlement;
Description of review: Five mortgage servicers agreed to conduct a
full review, overseen by DOJ's Civil Rights Division, to determine
whether any servicemembers were foreclosed on in violation of SCRA.;
Mortgage servicer:
* Ally Financial Inc.;
* Bank of America Corp.;
* Citigroup Inc.;
* Wells Fargo & Company;
* JPMorgan Chase Bank, N.A.;
SCRA provision(s) reviewed: Foreclosure;
Timeframes for mortgages reviewed: 2006-present.
Review: National Mortgage Settlement;
Description of review: Four mortgage servicers agreed to conduct a
thorough review overseen by DOJ's Civil Rights Division of mortgage
loans to determine whether any servicemember since January 1, 2008,
was charged interest in excess of 6 percent after submitting a valid
request to lower the interest rate;
Mortgage servicer:
* Ally Financial Inc.;
* Bank of America Corp.;
* Citigroup Inc.;
* Wells Fargo & Company;
SCRA provision(s) reviewed: Interest rate;
Timeframes for mortgages reviewed: 2008-present.
Source: GAO analysis of OCC, Federal Reserve, and DOJ consent orders.
[A] DOJ completed the Saxon Mortgage Servicing Review in May 2012.
[End of table]
[End of section]
Appendix III: Comments from the Department of Homeland Security:
U.S. Department of Homeland Security:
Washington, DC 20528:
July 3, 2012:
Mathew Scire:
Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Re: Draft Report GA0-12-700, "Mortgage Foreclosures: Regulatory
Oversight of Compliance with Servicemembers Civil Relief Act Has Been
Limited"
Dear Mr. Scire:
Thank you for the opportunity to review and comment on this draft
report. The U.S. Department of Homeland Security (DHS) appreciates the
U.S. Government Accountability Office's (GAO's) work in planning and
conducting its review and issuing this report.
The draft report contained four recommendations, only one of which
directly involves DHS and with which the Department concurs.
Specifically, GAO recommended that the Secretaries of the
Army, Air Force, Navy, and Homeland Security:
Recommendation: Assess the effectiveness of their efforts to educate
servicemembers on SCRA to determine better ways for making
servicemembers aware of their SCRA rights and benefits, including
improving the ways in which members of the reserve components obtain
such information.
Response: Concur. The Coast Guard strives to keep all its members
fully aware of Servicemembers Civil Relief Act (SCRA) benefits and
rights and will explore measures to assess effectiveness in the
future. Currently, the Coast Guard maintains a service-wide effort to
keep its military members (active duty and reserve) fully informed of
SCRA rights and benefits. The Coast Guard provides SCRA briefs to all
active duty and reserve members upon initial entry into the Service.
The Coast Guard Reserve also provides reservists information on SCRA
during pre-deployment briefs, as well as during "CG Yellow Ribbon
Program" pre-deployment, deployment, de-mobilization; and 30-, 60-,
and 90-day post-deployment-reconstitution periods.
Additionally, every Coast Guard servicemember has access to
information regarding SCRA benefits and rights through published
policy directives on the Coast Guard Intranet, the Coast Guard Judge
Advocate General Website [hyperlink,
http://www.uscg.mil/leagal/la/Legal_Assistance_SCRA.asp], and the
Coast Guard Legal Service Command Website, [hyperlink,
http://www.usca.mil/lsc/soldiers.asp]. Furthermore, formal legal
assistance is available through all Coast Guard Legal Offices.
Again, thank you for the opportunity to review and comment on this
draft report. Please feel free to contact me if you have any
questions. We look forward to working with you in the future.
Sincerely,
Signed by:
Jim H. Crumpacker:
Director:
Departmental GAO-OIG Liaison Office:
[End of section]
Appendix IV: Comments from the Department of Defense:
GAO received DOD's letter on July 2, 2012.
Office of The Under Secretary Of Defense:
Personnel and Readiness:
4000 Defense Pentagon:
Washington, D.C. 20301-4000:
Mr. Mathew Scire:
Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Scire:
This is the Department of Defense (DoD) response to the GAO Draft
Report, GAO-12700, "Mortgage Foreclosures: Regulatory Oversight of
Compliance with Servicemembers Civil Relief Act Has Been Limited,"
dated June 12, 2012 (GAO Code 250623).
As these matters are under my purview as the Director of Legal Policy
in the Office of the Under Secretary of Defense for Personnel and
Readiness, I have been asked to respond.
The DoD appreciates the depth of the GAO's study, and partially
concurs with the report.
In response to the recommendation that the Department Secretaries
should assess the effectiveness of their efforts to educate
servicemembers on the Servicemembers Civil Relief Act (SCRA) to
determine better ways for making servicemembers aware of their SCRA
rights and benefits, the DoD partially concurs. The education and
protection of our servicemembers is our highest priority, and the DoD
continuously evaluates the effectiveness of training our
servicemembers on their protections under the SCRA. As such, the DoD
is committed to continuing to do so bearing in mind the GAO's
recommendations.
Indeed, as I noted in testimony before the Senate Banking Committee on
this and other financially-related topics, the DoD is in the process
of conducting a study of financial issues affecting the Force. The
study will be propounded upon those who work with servicemembers and
their families in the field and to elicit the best anecdotal and
empirical data with respect to all financial issues affecting those
who serve. The survey will inform further DoD efforts.
Furthermore, the DoD will continue to inform our servicemembers—
particularly members of the reserve components—of their SCRA rights in
a multitude of platforms so as to ensure that all are aware of the
protections therein. The DoD constantly seeks to improve
communications with our servicemembers on these issues, and will
strive to develop methods to better disseminate SCRA information to
members of the reserve components.
As for our technical comments, page 37, para 1, reads "As discussed
above, SCRA requires that servicemembers receive SCRA training during
pre- and post-deployment briefings." This statement is incorrect, and
should reflect the language on page 33 to which it refers, which
states that the "SCRA requires that servicemembers be informed of the
rights and protections available under the SCRA upon entry into the
military, during initial orientation training, and, in the cases of
members of the reserve components, when called to active duty for
a period of more than one year." This clarification will ensure
consistency and accuracy regarding servicemember expectations under
the SCRA.
We appreciate your interest in and continued support for the men and
women of our Armed Forces.
Sincerely,
Signed by:
Paul E. Kantwill, Colonel, U.S. Army:
Director, Office of Legal Policy:
[End of letter]
GAO Draft Report Dated June 12, 2012:
GAO-12-700 (GAO Code 250623):
"Mortgage Foreclosures: Regulatory Oversight Of Compliance With
Servicemembers Civil Relief Act Has Been Limited"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommends that the Secretaries of the
Army, Air Force, and Navy, and Homeland Security should assess the
effectiveness of their efforts to educate servicemembers on SCRA to
determine better ways for making servicemembers aware of their SCRA
rights and benefits, including improving the ways in which members of
the reserve components obtain such information.
DoD Response: The DoD partially concurs. The DoD continuously
evaluates the effectiveness of training our servicemembers on their
protections under the SCRA, and will continue to do so bearing in mind
the GAO's recommendations. The DoD constantly seeks to improve
communications with our servicemembers on these issues, and will
remain alert to methods to improve not only the dissemination of SCRA
information to members of the reserve components, but also to ensure
retention of the important benefits allowed.
[End of section]
Appendix V: Comments from the Federal Deposit Insurance Corporation:
FDIC:
Federal Deposit Insurance Corporation:
Division of Depositor and Consumer Protection:
550 17th Street NW:
Washington, D.C. 20429-9990:
July 2, 2012:
Mathew J. Scire:
Director:
Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Scire:
The FDIC appreciates the opportunity to comment on the GAO report
Mortgage Foreclosures: Regulatory Oversight of Compliance with
Servicemembers Civil Relief Act Has Been Limited. The FDIC takes
seriously our responsibility to examine FDIC supervised institutions
for compliance with the requirements of the Servicemembers Civil
Relief Act (SCRA). As noted in the report, the FDIC performs risk-
focused consumer compliance examinations that include SCRA for
virtually all of our institutions during the period. Through our
supervisory efforts, the FDIC identified a number of SCRA violations
and ensured institutions implemented appropriate corrective actions to
meet the obligations under the statute.
During the time period of the 2007-2011, the FDIC issued FIL 83-2007
[hyperlink,
http://www.fdic.govinews/news/financia1/2007/fi107083.html] to FDIC-
supervised institutions to highlight the effective date and major
provisions of the Talent Amendment as well as other protections
afforded to service personnel under the Servicemembers Civil Relief
Act. In addition, the agencies issued Interagency Guidance on Mortgage
Servicing Practices Concerning
Military Homeowners with Permanent Change of Station Orders on June
21, 2012.
The report states that interviews with depository institution
personnel "provides the least assurance of SCRA compliance" because
the examiner is required to "rely" on assertions provided by the
employees. The FDIC believes that examiner interviews with bank
employees serve as an effective tool for assessing compliance with
consumer protection laws and regulations. Examiners are trained to ask
open-ended questions to determine whether the responsible institution
employees know and understand the law and effectively implement the
bank policies. As such, interviews are often used to verify that the
bank is conducting sufficient employee training and is enforcing its
policies and procedures.
The report further notes that the best method for determining SCRA
compliance would be to perform random testing of all mortgage loans.
The FDIC agrees that testing a representative sample of loans for
compliance with SCRA is an effective tool to assess compliance with
SCRA for large mortgage servicers.
The FDIC appreciates the GAO's careful review of regulators' oversight
of SCRA and remains committed to continuing our efforts to ensure FDIC-
supervised institutions comply with these important protections for
servicemembers. Please contact Megan Becker, Management
Analyst, Division of Finance - Corporate Management Control, at 703-
562-2627 with any questions you may have.
Sincerely,
Signed by:
Mark Pearce:
Director:
Division of Depositor and Consumer Protection:
[End of section]
Appendix VI: Comments from the Board of Governors of the Federal
Reserve System:
Board of Governors of The Federal Reserve System:
Sandra F. Braunstein:
Director:
Division of Consumer and Community Affairs:
Washington, D.C. 20551:
June 29, 2012:
Mr. Mathew Scire:
Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Scire:
Thank you for the opportunity to comment on the draft report entitled
"Mortgage Foreclosures: Regulatory Oversight of Compliance with
Servicemembers Civil Relief Act Has Been Limited." The Federal Reserve
is committed to ensuring appropriate financial protections for
servicemembers whose active duty military service can present
challenges to meeting financial obligations. As noted in the report,
the Federal Reserve examined for SCRA compliance 92.7 percent of state
member banks in your sample within the review period of 2007-2011.
The report also notes that the Federal Reserve and the OCC issued
consent orders to 14 large mortgage servicers in April 2011 that
require the servicers to take a number of actions. Among other
requirements, the servicers must engage independent consultants to
conduct a review of loan files to identify borrowers who suffered
financial injury as a result of wrongful foreclosures or other
deficiencies and provide remediation to those harmed borrowers. The
Federal Reserve is requiring the independent consultants to include in
the review all files for particular categories of borrowers who we
have determined present a significant risk of being financially
injured in the foreclosure process. Any borrower who falls into any
one of those categories must receive an independent foreclosure
review. The categories for mandatory review include all mortgages in
the mortgage foreclosure process in 2009 or 2010 involving members of
the military who were covered by the Servicemembers Civil Relief Act.
In addition, on February 9, 2012, the Board announced monetary
sanctions against five banking organizations totaling $766.5 million
for engaging in unsafe and unsound practices in their mortgage loan
servicing and processing. These monetary sanctions are based on the
same deficiencies that the servicers were required to correct through
the action plans under the April 2011 enforcement actions referred to
above. The amount of the sanctions takes into account the maximum
amount prescribed for unsafe and unsound practices under applicable
statutory limits, the comparative severity of each institution's
misconduct, and the comparative size of each institution's foreclosure
activities.
The draft report includes two recommendations to the Federal Reserve
and other federal financial regulators. The fast recommendation is
that regulators take steps to increase the frequency with which
examiners conduct mortgage loan file testing and employ testing
methods that provide greater assurance of compliance with SCRA. The
report notes that examiners can choose from different types of
testing, including interviews with financial institution management,
review of the institution's compliance management system, and testing
of individual loan files. GAO found that, in most instances, the loans
examiners tested were limited to a sample of loans that the financial
institution had identified as SCRA-eligible. The Federal Reserve
employs a risk-based examination methodology that incorporates all
three types of testing noted in the report. For purposes of evaluating
a financial institution's compliance with SCRA, Federal Reserve
examiners apply interagency examination procedures to test the
sufficiency of the institution's program for ensuring its employees
provide appropriate protections to active duty servicemembers. The
Federal Reserve will work with its federal financial regulatory agency
counterparts to consider appropriate ways to update those interagency
examination procedures.
The report's second recommendation is that the agencies with oversight
responsibility for SCRA compliance (the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the National Credit Union
Administration, the Federal Housing Finance Administration, the
Department of Housing and Urban Development, and the Department of
Veteran Affairs) explore options to share information related to SCRA
compliance oversight. The Federal Reserve agrees that additional
interagency collaboration related to SCRA trends and emerging risks
may be appropriate and useful in improving supervisory practices
related to SCRA compliance. As an example of this collaboration, the
Federal Reserve is currently planning an interagency servicemembers
financial protection webinar for financial industry participants. The
webinar is planned to include panelists from the federal financial
supervisory agencies and representatives from other agencies with
responsibility for SCRA. In addition, we will explore other
opportunities to share information with other federal regulators
consistent with this recommendation.
We appreciate the professionalism of the GAO's review team in
conducting this survey and for the opportunity to provide these
comments to the draft report.
Sincerely,
Signed by:
Sandra F. Braunstein:
[End of section]
Appendix VII: Comments from the Federal Housing Finance Agency:
Federal Housing Finance Agency:
Constitution Center:
400 7th Street, S.W.
Washington; D.C. 20024:
Telephone: (202) 649-3800:
Facsimile: (202) 649-1071:
[hyperlink, http://www.fhfa.gov]
July 6, 2012:
Mr. Mathew J. Scire:
Director:
Financial Markets and Community Investment:
Government Accountability Office (GAO):
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Scire:
Thank you for the opportunity to review and comment on the Government
Accountability Office (GAO) Report, Mortgage Foreclosures: Regulatory
Oversight of Compliance with Servicemembers Civil Relief Act Has Been
Limited.
Based on its review, GAO concluded that there currently is not routine
sharing of Servicemembers Civil Relief Act (SCRA) compliance
information among the federal depository institution regulators, FHA,
VA and FHFA, although there are some existing mechanisms for sharing
information that could be used or expanded. GAO has recommended that
the agencies, including FHFA, should explore options to utilize
existing mechanisms or develop new ones to improve interagency
information sharing relating to SCRA compliance oversight. FHFA
accepts this recommendation and will implement it as described below.
FHFA believes it is critical to work with other supervisory agencies
to support U.S. military homeowners, as reflected by coordinated
policy decisions regarding short sale relief announced recently by
agency leaders. FHFA agrees that increased information sharing among
supervisors of mortgage lending industry participants, such as the
government-sponsored enterprises, could assist in identifying
potential compliance problems and in some cases could improve the
identification of SCRA violations. Collaboration among supervisors
contributes to consistent and effective oversight of compliance by
supervised entities and to the identification of emerging risks and
compliance concerns.
As noted in GAO's report, FHFA currently has formal mechanisms in
place to permit interagency information sharing in many instances.
FHFA has written memoranda of understanding (MOUs) with various
agencies that provide channels for disclosure of confidential
supervisory information with appropriate confidentiality protections.
As a relatively new agency, FHFA is still in the process of developing
and refining these formal channels through which information can be
exchanged with other supervisors. FHFA's supervision function will
consider whether the existing MOUs are sufficient or should be
expanded to cover more types of information or more agencies to
broaden information sharing on issues of supervisory concern,
including SCRA compliance.
In addition to formal channels, FHFA has the ability to initiate or
respond to supervisory inquiries on an informal basis, for example, by
letter agreements. FHFA supervision will consider whether existing
protocols meet supervisory needs, or whether compliance oversight
would be improved by development of processes for more frequent,
routine communications with supervisors of other market participants
subject to mortgage lending compliance requirements.
If you have any questions, please do not hesitate to contact me.
Sincerely,
Signed by:
Jon D. Greenlee:
Deputy Director:
Division of Enterprise Regulation:
[End of section]
Appendix VIII: Comments from the Department of Housing and Urban
Development:
U.S. Department of Housing and Urban Development:
Assistant Secretary for Housing:
Federal Housing Commissioner:
Washington, DC 20410-8000:
July 3, 2012:
Mr. Mathew J. Scire:
Director:
Financial Markets and Community Investment:
Government Accountability Office:
441 0 Street, NW:
Washington, DC 20548-0001:
Dear Mr. Scire:
Thank you for the opportunity to comment on the draft GAO -12-700
report entitled, "Mortgage Foreclosures: Regulatory Oversight of
Compliance with Servicemembers Civil Relief Act Has Been Limited."
This letter conveys HUD's response to the audit. During a conference
call on May 15,2012, FHA's Office of Lender Activities and Program
Compliance provided technical comments regarding Servicemembers Civil
Relief Act (SCRA) to GAO.
With regard to the recommendations found in the report, FHA agrees
with the GAO's recommendation and its specific response is listed
below.
Recommendation:
Additionally, to increase agencies' awareness of potential problems
with SCRA compliance, the Comptroller of the Currency, the Chairman of
the Board of Governors of the Federal Reserve System, the Chairman of
the Federal Deposit Insurance Corporation, and Chairman of the
National Credit Union Administration, the Acting Director of the
Federal Housing Finance Administration, the Secretary of Housing and
Urban Development, and the Secretary Veterans Affairs should explore
options to utilize existing mechanisms or develop new ones to share
information related to SCRA compliance Oversight.
HUD Response:
FHA concurs with the sentiment that it is critical to have interagency
collaboration. FHA also agrees that it should participate in agencies'
discussions to explore options to utilize existing mechanisms or
develop new ones to share information related to SCRA compliance.
However, since FHA does not have responsibility for overseeing SCRA,
it would assume a participatory role vs. a leadership role. Further,
we think that such collaboration should not he limited to SCRA
compliance, but should he broad enough in scope to include all of our
mutual interests the area of single family housing.
We appreciate the efforts of the G.A.0 to review our compliance with
SCRA and suggest recommendation for interagency collaboration to
strengthen our regulatory compliance oversight of mortgage
foreclosures related to SCRA.
Sincerely,
Signed by:
Carol J. Galante:
Acting Assistant Secretary for Housing:
Federal Housing Commissioner:
[End of section]
Appendix IX: Comments from the National Credit Union Administration:
National Credit Union Administration:
1775 Duke Street:
Alexandria, VA 22314-3428:
703-518-6300:
June 25, 2012:
Mathew Scire:
Director, Financial Markets and Community Investment:
United States Government Accountability Office:
441 G Street NW:
Washington, DC 20548:
Dear Mr. Scire:
Thank you for the opportunity to comment on the draft report Mortgage
Foreclosures: Regulatory Oversight of Compliance with Servicemembers
Civil Relief Act Has Been Limited (GAO-12-700). In your report, you
recommend the National Credit Union Administration (NCUA) and other
federal financial regulators conduct testing of foreclosure files and
as applicable, other mortgage loan files, and employ testing methods
that provide greater assurance that mortgage servicers are complying
with the Servicemembers Civil Relief Act (SCRA). You also recommend
the NCUA and other federal financial regulators explore options to use
existing mechanisms or develop new ones to share information related
to SCRA compliance oversight and increase our awareness of potential
compliance problems.
We believe your conclusions are reasonable and consistent with your
findings. As you note in your report, testing is an effective
monitoring technique, and additional testing of loan files during
examinations would provide greater assurance of SCRA compliance.
For the past several years, we have been improving our examination
process to meet the demands of the current economic environment. In
2009, the NCUA Board approved the creation of the Office of Consumer
Protection (OCP) to demonstrate the importance NCUA places on consumer
protection and raise the profile of this function. One of OCP's
responsibilities is conducting fair lending examinations at federal
credit unions nationwide. Starting with our 2011 fair lending
examinations, staff separate from our regional, safety and soundness
examiners review the lending practices of federal credit unions to
ensure compliance with consumer protection laws, including SCRA.
Along with testing during our fair lending examinations, NCUA has
incorporated reviews for SCRA compliance in our analysis and
investigations of member complaints. Specifically, our online member
complaint form includes fields where credit union members can indicate
their military affiliation. Additionally, when the SCRA is implicated
during staffs review of circumstances involved in a member complaint,
we verify the complainant's military status, notify the federal credit
union of the potential SCRA compliance risks, and instruct the credit
union to analyze and take corrective action on the matter in light of
the SCRA.
Our agency uses tools developed by interagency groups as a part of our
supervision and compliance programs. Specifically, many of our
examination procedures, especially the procedures addressing consumer
compliance, are prescribed by the Federal Financial Institutions
Examination Council (FFIEC).[Footnote 1] Additionally, NCUA uses our
participation in the FFIEC and other interagency working groups, such
as the Task Force on Fair Lending,[Footnote 2] to share information
regarding the supervision of financial institutions and compliance
concerns. We are currently sharing information with the Consumer
Financial Protection Bureau regarding consumer compliance oversight
and working with the federal financial regulators to develop tools to
facilitate information sharing. Most recently, NCUA joined the other
federal financial regulators to issue guidance regarding mortgage
servicer practices that might pose risks to homeowners who are serving
in the military.
As our agency advances its consumer protection initiatives, we will
continue to encourage credit unions to consistently demonstrate best
practices in mortgage lending and to pay particular attention to the
SCRA. We will use your report as a benchmark when evaluating our
supervision practices and working with other regulators to ensure
prudent regulatory oversight.
We appreciate the opportunity to comment and commend the
professionalism of your staff throughout the audit process.
Sincerely,
Signed by:
David Marquis:
Executive Director:
Footnotes:
1. The Federal Financial Institutions Examination Council (FFIEC) is a
formal interagency body empowered to prescribe uniform principles,
standards, and report forms for the federal examination of financial
institutions by the Board of Governors of the Federal Reserve System
(FRB), the Federal Deposit Insurance Corporation (FDIC), the National
Credit Union Administration (NCUA), the Office of the Comptroller of
the Currency (OCC), the Consumer Financial Protection Bureau (CFPB),
and State Liaison Committee to promote uniformity in the supervision
of financial institutions.
2. The Task Force on Fair Lending is a formal interagency group
comprised of the Department of Housing and Urban Development,
Department of Justice, CFPB, FDIC, Federal Housing Finance Agency, FRB,
Federal Trade Commission, NCUA, and OCC.
[End of section]
Appendix X: Comments from the Office of the Comptroller of the
Currency:
Comptroller of the Currency:
Administrator of National Banks:
Washington, DC 20219:
July 9, 2012:
Mr. Mathew Scire:
Director, Financial Markets and Community Investment:
United States Government Accountability Office:
Washington, DC 20548:
Dear Mr. Scire:
The Office of the Comptroller of the Currency (OCC), has reviewed your
draft report titled "Mortgage Foreclosures: Regulatory Oversight of
Compliance with Servicemembers Civil Relief Act Has Been Limited"
(Report). Your Report responds to Congressional requests to examine
various aspects of federal oversight of compliance with the
Servicemembers Civil Relief Act (SCRA).
The Report included the following findings: (1) of the institutions
reviewed for SCRA compliance, only about half received examinations
that involved testing of compliance by reviewing loan files; (2)
examiners only reviewed loans identified by the institution as
involving servicemembers and had not independently selected a
statistical sample of loans files; and (3) while there are various
federal agencies and institution regulators involved in SCRA
compliance oversight, these groups do not share information among
themselves.
To help ensure institution compliance and effective oversight by
regulators, the Report recommends that institution regulators increase
the frequency with which examiners conduct testing of foreclosure and
other mortgage loan files, and employ testing methods that provide a
greater assurance that mortgage servicers are complying with the SCRA.
The Report also recommends that federal agencies and institution
regulators explore options to utilize existing mechanisms or develop
new ones to share information related to SCRA compliance oversight.
We agree with the Report recommendations and will update our
examination guidelines to ensure that a review of SCRA compliance is
conducted during each supervisory cycle for OCC-regulated
institutions. The review will include the testing of loan files
selected using an appropriate methodology to assess compliance with
the SCRA. The OCC will also continue to be an active member of the
Federal Financial Institutions Examination Council (FFIEC) Task Force
on Consumer Compliance, an interagency organization that works
collectively to develop examiner guidance, examination procedures, and
discuss emerging risks or trends identified regarding new
products/services. FFIEC SCRA examination procedures were developed
and issued in 2009. As part of an interagency effort to provide
guidance to the industry, the OCC and other federal regulators
recently issued guidance on Mortgage Servicing Practices Concerning
Military Homeowners with Permanent Change of Station Orders.
Additionally, the OCC, the other prudential regulators, and the
Consumer Financial Protection Bureau (CFPB) signed a Memorandum of
Understanding on Supervisory Coordination that outlines the
coordination of examinations and the sharing of compliance oversight
information, including SCRA.
We appreciate the opportunity to comment on the draft Report. If you
need additional information, please contact John Lyons, Senior Deputy
Comptroller for Bank Supervision Policy and Chief National Bank
Examiner, at 202-874-2870.
Sincerely,
Signed by:
Thomas J. Curry:
Comptroller of the Currency:
[End of section]
Appendix XI: Comments from the Department of Veterans Affairs:
Department of Veterans Affairs:
Washington DC 20420:
July 6, 2012:
Mr. Mathew Scire:
Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Scire:
The Department of Veterans Affairs (VA) has reviewed the Government
Accountability Office's (GAO) draft report, "Mortgage Foreclosures:
Regulatory Oversight of Compliance with Servicemembers Civil Relief
Act Has Been Limited" (GAO-12-700), and concurs with both
recommendations.
The enclosure specifically addresses GAO's recommendations and
contains a technical comment. VA appreciates the opportunity to
comment on your draft report.
Sincerely,
Signed by:
John R. Gingrich:
Chief of Staff:
Enclosure:
[End of letter]
Enclosure:
Department of Veterans Affairs (VA) Comments to Government
Accountability Office (GAO) Draft Report: "Mortgage Foreclosures:
Regulatory Oversight of Compliance with Servicemembers Civil Relief
Act Has Been Limited" (GAO-12-700).
GAO Recommendation 1: To help ensure that VA assists servicemembers with
remaining in their homes and avoiding foreclosure, the Secretary of
Veterans Affairs should ensure that a review for SCRA compliance is
included in the department's new mortgage servicer monitoring program
and that additional steps to assess SCRA compliance are taken by VA
staff during its Adequacy of Servicing reviews and while conducting
supplemental servicing.
VA Response: Concur. One emphasis of VA's Home Loan Program is to
ensure all Veterans and Servicemembers receive every opportunity to
retain their homes or avoid foreclosure. VA accomplishes this by
advocating for Veterans to make sure they are aware of their
protections under SCRA. This includes sending letters and talking
personally to Veteran borrowers in default to advise them of SCRA
protections, handing out 'quick books" detailing SCRA provisions at
military and homeowner-focused events, and providing a SCRA Web banner
on VA's Home Loan Web page detailing all of the SCRA mortgage
protections. VA will revalidate and as necessary, revise its focus and
procedures to ensure Veteran borrowers are receiving all SCRA
protections to which they are entitled. VA is committed to assisting
Veteran borrowers during times of financial hardship and to
appropriately notify DOJ and other stakeholder agencies/regulators of
any identified violations. As noted in the report, the Department of
Justice (DOJ) has explicit authority to enforce compliance with SCRA.
Regarding the recommendation to ensure that a review for SCRA
compliance is included in the Department's new mortgage servicer-
monitoring program, VA will include in its mortgage servicer-
monitoring program a review, which ensures that, as a part of
servicers' loss mitigation efforts, servicers acted to appropriately
afford SCRA-eligible borrowers the mortgage protections available to
them under SCRA. If violations of SCRA mortgage provisions are
discovered, VA will also act to appropriately notify DOJ and other
stakeholder agencies/regulators of those violations. VA expects to
implement the enhancement to the servicer-monitoring program by
September 30, 2012.
Regarding the recommendation that additional steps to assess SCRA
compliance are taken by VA staff during its Adequacy of Servicing
reviews and while conducting supplemental servicing, VA will
incorporate additional steps to assess whether the servicer acted to
appropriately afford SCRA-eligible borrowers with the mortgage
protections available to them under SCRA. If violations of SCRA
mortgage provisions are discovered, VA will also act to appropriately
notify DOJ and other stakeholder agencies/regulators of those
violations. VA expects to have these additional Adequacy of Servicing
review steps implemented by August 1, 2012.
GAO Recommendation 2: To increase agencies' awareness of potential
problems with SCRA compliance, the Comptroller of the Currency, the
Chairman of the Board of Governors of the Federal Reserve System, the
Chairman of the Federal Deposit Insurance Corporation, and Chairman of
the National Credit Union Administration, the Acting Director of the
Federal Housing Finance Administration, the Secretary of Housing and
Urban Development, and the Secretary Veterans Affairs should explore
options to utilize existing mechanisms or develop new ones to share
information related to SCRA compliance oversight.
VA Response: Concur. VA will collaborate with the noted government
entities and explore options to utilize existing mechanisms or develop
new ones to share information related to SCRA oversight.
[End of section]
Appendix XII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Mathew J. Scirè, (202) 512-8678, or sciremj@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Cody Goebel, Assistant
Director; Meghana Acharya; Rachel Batkins; Rudy Chatlos; Christine
Houle; John McGrail; Mark Ramage; and Jennifer Schwartz made key
contributions to this report.
[End of section]
Footnotes:
[1] 50 U.S.C. §§ 501 - 597b.
[2] Active duty for armed services is defined in 10 U.S.C. §101(d)(1)
as "full-time duty in the active military service of the United
States." Such terms include "full-time training duty, annual training
duty, and attendance, while in the active military service, at a
school designated as a service school by law or by the Secretary of
the military department concerned." The act entitles servicemembers to
foreclosure protection for a period of 9 months after their active
duty service and to interest rate caps for up to 1 year after active
duty service.
[3] See e.g. Hurley v. Deutsche Bank Trust Company Americas, No. 1:08-
CV-361, 2009 WL 701006 (W.D. Mich. March 13, 2009).
[4] Eight of the selected institutions were excluded from our
analysis. Three institutions regulated by the Federal Reserve were
excluded because they were recently chartered and therefore had not
had an examination. We also excluded five credit unions because they
were state chartered, meaning that state supervisory authorities and
not NCUA served as the primary regulator for these institutions. See
appendix I for additional information about our sample.
[5] Estimates based on this workpaper review are subject to sampling
error. All estimates used in this report are presented along with
their 95 percent confidence intervals. See appendix I for additional
information about our sample.
[6] A prior version of the law was enacted in 1918.
[7] A servicemember may waive many of the rights and protections
provided by SCRA provided the waiver meets certain criteria, including
that it is in writing and is in a document separate from the
obligation or liability to which it applies. 50 U.S.C. § 517. The
waiver provision "is designed to induce servicemembers and their
creditors to adjust their respective rights privately and to make it
clear that no restrictions have been placed upon the usual right of
the parties to re-negotiate an obligation." The Judge Advocate
General's Legal Center & School, U.S. Army, JA 260, Servicemembers
Civil Relief Act, 2-8 (March 2006).
[8] SCRA defines servicemembers as members of the uniformed services
found in 10 U.S.C. §101(a)(5) which includes the commissioned corps of
the National Oceanic and Atmospheric Administration and the Public
Health Service. Active duty is defined in 10 U.S.C. §101(d)(1). We did
not collect any specific information related to SCRA protections for
officials from the National Oceanic and Atmospheric Administration and
the Public Health Service for this report.
[9] 50 U.S.C. app. §527. The act defines interest to include service
charges, renewal charges, fees, or any other charges (except bona fide
insurance). A servicer has the right to challenge the reduction in
interest in court, if it believes that the servicemember's ability to
pay interest above 6 percent is "not materially affected by reason of
the servicemember's military service." 50 U.S.C. § 527(c).
[10] 50 U.S.C. app. § 533(c). This provision is directed at
foreclosures that are referred to as non-judicial. Once a mortgage
servicer decides to foreclose, it follows either a judicial or non-
judicial foreclosure method, depending on state law. In a judicial
foreclosure, servicers initiate a formal foreclosure action by filing
a lawsuit in court. The presiding judge, upon the conclusion of a
hearing, will, in the appropriate circumstances, issue an order for
the foreclosure to proceed. By contrast, a non-judicial foreclosure
process takes place outside the courtroom and is typically conducted
by the trustee named in the deed-of-trust document. Trustees, and
sometimes servicers, generally send a notice of default to the
borrower and publish a notice of sale in area newspapers or legal
publications. Pursuant to 50 U.S.C. § 533(c), if a lender in a non-
judicial foreclosure state forecloses on a servicemember that took out
his or her mortgage prior to active duty service without a court
order, the foreclosure is invalid.
[11] In 2008, P. L. 110-289, § 2203, extended this protection for
servicemembers from 90 days after active duty service to 9 months
after active duty service, effective until December 31, 2010. In 2010,
P. L. 111-346, § 2 changed the expiration date of the 9-month
protection to December 31, 2012; on January 1, 2013, the period
prohibiting foreclosure without a court order will revert to 90 days.
[12] 50 U.S.C. app. §523(b).
[13] 50 U.S.C. app §518.
[14] Section 106(c)(5) of the Housing and Urban Development Act of
1968 (12 U.S.C. 1701x (c)(5)). ("Home loan" means a loan secured by a
mortgage or lien on residential property. A homeowner is eligible for
counseling if (1) the loan is secured by the homeowner's principal
residence, (2) the home loan is not assisted by the U.S. Department of
Agriculture's Rural Housing Service, and (3) the homeowner is, or is
expected to be, unable to make payments, correct a home loan
delinquency within a reasonable time, or resume full home loan
payments due to a reduction in the homeowner's income. In lieu of
providing notification of available homeownership counseling offered
by the lender, servicers may provide either a list of HUD-approved
nonprofit homeownership counseling organizations or the toll-free
number HUD has established through which a list of such organizations
can be obtained.)
[15] Section 688 of the National Defense Authorization Act for Fiscal
Year 2006 (Public Law 109-163, enacted January 6, 2006) amended the
required content of notifications of homeownership counseling
availability under §106(c)(5)(A)(ii) of the Housing and Urban
Development Act (12 U.S.C. 1701x(c)(5)(A)(ii)) and directed HUD to
develop and disseminate a format for the required notice.
[16] DHS oversees servicemembers in the Coast Guard and the Coast
Guard Reserve.
[17] The reserve components consist of three categories: Ready
Reserve, Standby Reserve, and Retired Reserve. The Ready Reserve is
comprised of the Selected Reserve, the Individual Ready Reserve, and
the Inactive National Guard. Because Selected Reserve members train
throughout the year and participate annually in active duty training
exercises, our report discusses this category of the reserve.
[18] The data on the reserve components represent only those of the
Selected Reserve.
[19] The National Guard is comprised of 54 separate organizations: one
for each state, and one each for Puerto Rico, Guam, the U.S. Virgin
Islands, and the District of Columbia.
[20] Members of the National Guard who are called to federal active
duty service are under Title 10 of the United States Code. When under
the command of their respective governors, National Guard members
operate under Title 32 status and may be called upon to carry out a
number of domestic missions, such as responding to natural disasters,
protecting state assets from terrorist attack, and training for their
federal missions.
[21] National Guard members are eligible for SCRA protections when
called to state active duty under 32 U.S.C. § 502(f) if the duty is
because of a federal emergency, the request is made by the President
or the Secretary of Defense, and the member is activated for longer
than 30 days. 50 U.S.C. app. § 511(2)(A)(ii). An example of National
Guard members fitting into this category would be those members
activated by the states, at the request of the President, to provide
airport security after the 9-11 attacks.
[22] 12 U.S.C. §1818; 12 U.S.C. §1786.
[23] The Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. No. 111-203, 124 Stat. 1376 (2010), eliminated the Office of
Thrift Supervision (OTS), which chartered and supervised federally
chartered savings institutions and savings and loan holding companies.
Supervisory authority was transferred to OCC for federal savings
associations, to FDIC for state savings associations, and to the
Federal Reserve for savings and loan holding companies and their
subsidiaries, other than depository institutions. The transfer of
these powers was completed on July 21, 2011, and OTS was officially
dissolved 90 days later.
[24] Federal consumer financial law is a defined term in the Dodd-
Frank Act that includes over a dozen existing federal consumer
protection laws, including the Truth in Lending Act, the Real Estate
Settlement Procedures Act, and the Equal Credit Opportunity Act, as
well as the provisions of title X of the Dodd-Frank Act itself. 12
U.S.C. § 5481(12), (14).
[25] The seven agencies are the Federal Reserve, FDIC, Federal Trade
Commission, NCUA, OCC, OTS, and HUD.
[26] 12 U.S.C. § 5515.
[27] CFPB's nondepository supervision authorities specifically extend
to any covered person that "offers or provides origination, brokerage
or servicing of loans secured by real estate for use by consumers
primarily for personal, family or household purposes, or loan
modification or foreclosure relief services in connection with such
loans." 12 U.S.C. § 5514(a)(1)(A).
[28] 12 U.S.C. § 5512. The Federal Trade Commission will retain its
current enforcement authority.
[29] 24 CFR 203.610, 24 CFR 203.345 and 203.346.
[30] Pub. L. 110-289, sec. 1101.
[31] Reserve personnel are entitled to most of SCRA's protections on
the date they receive active duty orders. 50 U.S.C. App. § 516(a).
[32] Because some members of the reserve components may have been
activated more than once between 2007 and 2010, this estimate may
represent a larger population of servicemembers than those that were
eligible for SCRA mortgage protections during this period.
[33] GAO, Military Personnel: Reserve Component Servicemembers On
Average Earn More Income while Activated, [hyperlink,
http://www.gao.gov/products/GAO-09-688R] (Washington, D.C.: June 23,
2009), p.3.
[34] Census computes the homeownership rate by dividing the number of
owner-occupied housing units by the number of occupied housing units
or households.
[35] DOD Status of Forces Survey of Active Duty Members (August 2008)
and Status of Forces Survey of Reserve Component Members (November
2008). The margin of error for active duty servicemembers is plus or
minus 1 percent and plus or minus 2 percent for reserve component
members. Survey results do not include responses from members of the
Coast Guard and Coast Guard Reserve.
[36] United States of America v. BAC Home Loans Servicing, Civil No.
2:11-cv-04534-PA-MRW (C.D. Cal. 2011) and United States of America v.
Saxon Mortgage Services, Inc., Civil No. 3:11-cv-0111-F (N.D. Tex.
2011). BAC Home Loans Servicing, LP, was formerly known as Countrywide
Home Loans Servicing and is a subsidiary of Bank of America
Corporation. Saxon Mortgage Services was a subsidiary of Morgan
Stanley.
[37] Rowles v. Chase Home Finance, Civil No. 9:10-cv-01756-MBS (D.S.C.
2011).
[38] DMDC made changes to the website in April 2012. These changes
removed the data field on active duty start date from search results.
However, according to a representative of a large mortgage servicer,
it used that field to determine if servicemembers obtained their
mortgages prior to active duty status. In May 2012, DMDC announced
that this field would again be made available from database queries.
[39] FFIEC is an interagency body that prescribes uniform principles,
standards, and report forms for depository institution examinations.
Its members currently include CFPB, FDIC, Federal Reserve, NCUA, and
OCC. A representative state regulator also serves as a voting member
of FFIEC. SCRA was not one of the enumerated laws under the Dodd-Frank
Act for which oversight transferred to CFPB.
[40] GAO, Mortgage Foreclosures: Documentation Problems Reveal Need
for Ongoing Regulatory Oversight, [hyperlink,
http://www.gao.gov/products/GAO-11-433] (Washington, D.C.: May 2,
2011), p.28.
[41] The prudential regulators and others recently took steps intended
to address mortgage servicer practices that may pose risk to
homeowners serving in the military. In June 2012, FDIC, Federal
Reserve, OCC, NCUA, and CFPB issued joint guidance to mortgage
servicers regarding servicemembers with permanent change-of-station
orders. Because such physical relocations can affect servicemembers'
ability to pay their mortgages, the guidance states that mortgage
servicers should ensure that their employees are adequately trained
about options for homeowners undergoing such relocations and take
steps to ensure that information on relevant assistance programs is
accurate and readily understandable. Similarly, in June 2012, FHFA
announced that Fannie Mae and Freddie Mac will consider a
servicemember's receipt of permanent change-of-station orders as
making such borrowers eligible for a short-sale, even if the borrower
is current on his or her mortgage.
[42] All estimates from our workpaper review are subject to sampling
error. For this estimate, we are 95 percent confident that the actual
population value is between 45 percent and 52 percent.
[43] We selected a sample of 160 institutions, but a total of 8 were
determined to be out of the scope of our study for various reasons,
such as being new institutions that had yet to have been examined. See
appendix I for additional information about our sampling methodology.
[44] We reviewed examinations for all 40 of the large institutions,
and therefore the percentage presented is the percentage of these 40
large institutions, and is not an estimate. For our estimates of the
remaining institutions, we are 95 percent confident that the actual
population of these institutions that were examined for SCRA is
between 45 percent and 52 percent.
[45] We reviewed examinations for all 40 of the large institutions,
and therefore the percentages presented are the percentages of these
40 large institutions, and are not estimates.
[46] [hyperlink, http://www.gao.gov/products/GAO-11-433], pp. 48-52.
[47] We are 95 percent confident that the actual population value for
institutions that were not examined for SCRA is between 48 percent and
56 percent. We are 95 percent confident that the actual population
value for institutions for which examiners failed to document their
reasons for excluding SCRA is between 95 percent and 100 percent.
[48] In addition, our review of the regulators' 2007 through 2011
complaint data revealed that collectively they had received 201 SCRA
complaints from 2007 through 2011, 88 (44 percent) of which pertained
to residential mortgages. This number represents less than 1 percent
of all complaints the prudential regulators received during this
period.
[49] 50 U.S.C. app. § 597. This provision was added to SCRA in October
2010. See Pub. L. 111-275, § 303(a), 124 Stat. 2877.
[50] We use the term investigation to refer to a written or oral
inquiry for which a DOJ official spends at least 2 hours
investigating. DOJ uses the term matter to describe these instances.
[51] Because DOJ does not document inquiries that require less than 2
hours of investigation, the number of investigations listed here may
underestimate the number of SCRA referrals DOJ received.
[52] A Fannie Mae official told us that as of November 2011, the
examiner guidance they used for SCRA compliance reviews only included
procedures for examining for compliance with the interest rate
provisions of SCRA, but that they were working to update it for 2012
to incorporate compliance with SCRA's foreclosure provisions.
[53] The prudential regulators already have an agreement to share such
information with another financial regulator. In May 2012, the
prudential regulators and the Consumer Financial Protection Bureau
issued a Memorandum of Understanding (MOU) that clarifies how the
agencies will coordinate their supervisory activities. Under the MOU,
the agencies will coordinate examinations and other supervisory
activities and share certain material supervisory information
concerning compliance with federal consumer financial laws and certain
other federal laws that regulate consumer financial products and
services, including SCRA.
[54] GAO, Financial Market Regulation: Agencies Engaged in
Consolidated Supervision Can Strengthen Performance Measurement and
Collaboration, [hyperlink, http://www.gao.gov/products/GAO-07-154]
(Washington, D.C.: Mar. 15, 2007).
[55] GAO, Fair Lending: Data Limitations and the Fragmented U.S.
Financial Regulatory Structure Challenge Federal Oversight and
Enforcement Efforts, [hyperlink,
http://www.gao.gov/products/GAO-09-704] (Washington, D.C.: July 15,
2009).
[56] Section 105, Codified at 50 U.S.C. App §515 and §690 of the
National Defense Authorization Act of Fiscal Year 2006, P.L. 109-113,
codified at 50 U.S.C. App §515a.
[57] As of May 2012, there were a total of 175 legal assistance
offices throughout the country and over 60 legal assistance offices
located internationally.
[58] 10 U.S.C 1044. All regular, active duty servicemembers and
members of the reserve components on active duty for 30 days or more
are eligible to obtain legal support from a legal assistance office.
For members of the reserve components, this access extends for a
period twice the length of the servicemembers' active duty period when
the servicemember is no longer on active duty service.
[59] Only junior-enlisted (E6 or below) servicemembers are eligible
for assistance through the Military Pro Bono Project unless there are
compelling circumstances and at the discretion of the pro bono
attorney or firm.
[60] Section 105, Codified at 50 U.S.C. App §515 and §690 of the
National Defense Authorization Act of Fiscal Year 2006, P.L. 109-113,
codified at 50 U.S.C. App §515a.
[61] See [hyperlink, http://www.militaryonesource.mil].
[62] DOD Status of Forces Survey of Active Duty Members (August 2008)
and Status of Forces Survey of Reserve Component Members (November
2008). The margin of error for both active duty servicemembers and
reserve components members is plus or minus 2 percent. Survey results
do not include responses from members of the Coast Guard and Coast
Guard Reserve.
[63] The Consolidated Reports of Condition and Income (Call Reports)
are a primary source of financial data used for the supervision and
regulation of banks. They consist of a balance sheet, an income
statement, and supporting schedules. The Report of Condition schedules
provide details on assets, liabilities, and capital accounts. The
Report of Income schedules provide details on income and expenses.
Every national bank, state member bank, and insured state nonmember
bank is required to file a consolidated Call Report normally as of the
close of business on the last calendar day of each calendar quarter.
The specific reporting requirements depend upon the size of the bank
and whether it has any foreign offices.
[64] We included institutions from all U.S. states and territories.
[65] NCUA maintains a financial reporting system for credit unions
separate from the Call Reports FDIC maintains for depository
institutions. Credit unions submit financial reports to NCUA credit
union regulators (also referred to as Call Reports), which are then
compiled into quarterly listings referred to as the 5300 Call Report.
[66] Our review did not identify any institutions that had
examinations for SCRA compliance from 2007 through 2011 that consisted
only of requests for information.
[67] The 14 mortgage servicers included in the consent order are Ally
Bank/GMAC Bank; Aurora Bank, FSB; Bank of America, N.A.; Citibank,
N.A.; EverBank; HSBC Bank, USA, N.A.; JPMorgan Chase Bank, N.A.;
MetLife Bank, N.A; OneWest Bank, FSB; PNC Bank, N.A.; Sovereign Bank;
SunTrust Bank; U.S. Bank, N.A.; and Wells Fargo Bank, NA. According to
OCC and Federal Reserve's report on this interagency review, these 14
institutions represented over two-thirds of the mortgage servicing
industry as of the end of 2010. The former Office of Thrift
Supervision (OTS)--a prudential regulator--was also involved in the
review and resulting enforcement actions. However, the Dodd-Frank Wall
Street and Consumer Protection Act of 2010 eliminated the agency
effective July 2011 and transferred the supervisory authority for its
institutions to the Federal Deposit Insurance Corporation (FDIC),
Federal Reserve, and OCC. FDIC participated in this interagency review
in a backup role.
[68] GAO issued a report on the actions of the regulators and
servicers involved in these reviews. See GAO, Foreclosure Review:
Opportunities Exist to Further Enhance Borrower Outreach Efforts,
[hyperlink, http://www.gao.gov/products/GAO-12-776] (Washington, D.C.:
June 29, 2012). GAO also has ongoing work looking at the actions of
the regulators and servicers.
[69] 50 U.S.C. App. §533. United States v. Saxon Mortgage Services
Inc. (Northern District of Texas, Dallas Division). DOJ's complaint
alleged that Saxon's conduct violated §533(c) of SCRA and constituted
a pattern or practice of foreclosing on servicemembers without court
orders during a period of military service, or a period otherwise
protected by SCRA. Saxon Mortgage Services, Inc. is a subsidiary of
Morgan Stanley. United States v. BAC Home Loans Servicing, LP f/k/a
Countrywide Home Loans Servicing, LP (Central District of California).
DOJ's complaint alleged that BAC Home Loans Servicing's conduct
violated §533(c) of SCRA and constituted a pattern or practice of
foreclosing on servicemembers without court orders during a period of
military service, or a period otherwise protected by SCRA. BAC Home
Loans Servicing LP, formerly known as Countrywide Home Loans Servicing
LP, is a subsidiary of Bank of America Corporation.
[70] The five servicers were Ally Financial Inc./GMAC, Bank of America
Corp., Citigroup Inc., JPMorgan Chase Bank, N.A., and Wells Fargo &
Company.
[71] Under the settlement agreement, Ally Financial Inc., Bank of
America, Citigroup Inc., and Wells Fargo & Company will be required to
provide any servicemember subjected to a wrongful foreclosure with a
payment equal to the servicemember's lost equity, plus interest, and
an additional $116,785 or an amount provided for the same violation
under the review conducted by OCC or the Federal Reserve, whichever is
higher. To ensure consistency with an earlier private settlement,
JPMorgan Chase will provide any servicemember who was a victim of a
wrongful foreclosure as a result of a violation of SCRA either his or
her home free and clear of any debt plus compensation for additional
harm or the cash equivalent of the full value of the home at the time
of sale plus compensation for additional harm suffered. Ally Financial
Inc., Bank of America, Citigroup Inc., and Wells Fargo & Company will
be required to provide any servicemember who was wrongfully charged
interest in excess of 6 percent with a payment equal to a refund, with
interest, of any amount charged in excess of 6 percent plus triple the
amount refunded or $500, whichever is larger. JPMorgan Chase had
already compensated servicemembers charged excess interest through the
earlier private settlement.
[End of section]
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